# How do you calculate tax on Capital gains of selling stocks?



## xyztrade (Dec 14, 2014)

for example, if my capital gain on cashing of a certain stock is $750,000

given the taxation info on CRA website:

50% of this capital gain is taxable, which is $375,000.

With 29% (federal), 16.8 (BC) (total: 45.8%) tax rate: $171,750 (tax); $203,250 (after-tax) 


^^^^^^^

the above was totally wrong
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however, when I use the tax calculator from simpletax, it gives me the following answer:


"""Annual Income ($1) [assume all of my income comes from investing in stocks)

750,000 was put in to "capital gain"


You'll owe about $148,577 in taxes: $96,398 in federal tax and $52,179 in provincial tax.

Your after-tax income is $601,424, average tax rate is 19.8%, and marginal tax rate is 45.8%."""


where in the calculation did I do wrong?


ps: i had read the sticky guide, somehow i still get it wrong. sry if this question has been asked before.


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## PoolAndRapid (Dec 3, 2013)

..


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## cainvest (May 1, 2013)

Yup, just what PoolAndRapid said, different rates for each tax bracket plus your "tax free" basic personal amount.


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## xyztrade (Dec 14, 2014)

PoolAndRapid said:


> Canada has a progressive tax system. Only the amount above $151,500 will be taxed at the top marginal rate of 45.8% (for BC). The amount below that will be taxed at varying rates that are lower which is why the calculation from Simpletax is coming back with a lower value than what you calculated.





cainvest said:


> Yup, just what PoolAndRapid said, different rates for each tax bracket plus your "tax free" basic personal amount.


thanks finally got my number crunching right! 


btw, as for "tax free" basic personal amount, are you referring to TFSA?


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## yupislyr (Nov 16, 2009)

xyztrade said:


> thanks finally got my number crunching right!
> 
> 
> btw, as for "tax free" basic personal amount, are you referring to TFSA?


No. He's referring to the non refundable "basic personal amount" tax credit that everyone gets that makes your first bit of income tax free.

http://www.taxtips.ca/taxrates/bc.htm


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## Eclectic12 (Oct 20, 2010)

TFSA contribution room or a TFSA account have nothing to do with filing out a tax return.

The basic personal amount is a deduction from income which every Canadian is allowed. 
http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns300-350/300-eng.html


Schedule 3, part 3 "Publicly traded shares, mutual fund units ..." will calculate the capital gain (or loss) from that share sale.
Other transactions will be factored in to increase or decrease this to end up on line 197 with "Total Capital Gains (or Losses).

Line 199 reduces what was the total by 50% to end up with "Taxable Capital Gains (or net Capital Loss)".

This number is then transferred to the T1 form, line 127 "Taxable Capital Gains" to added to other income (ex. employment, rental, dividends, business etc.) to end up with line 150 "Total Income".

The next section "Net Income" will subtract deductions such as RRSP contributions, the personal amount to end up with line 236 "Net Income".

The "Taxable Income" section will subtract any further deductions to end up with line 260 "Taxable Income". 

So there's a couple of rounds of deductions from whatever income was made, before the income tax is calculated.


BTW - if you've never done a tax return before, you might want to borrow a book from the library so that you can make sure you are paying what you owe, no more or less.


Cheers


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## xyztrade (Dec 14, 2014)

yupislyr said:


> No. He's referring to the non refundable "basic personal amount" tax credit that everyone gets that makes your first bit of income tax free.
> 
> http://www.taxtips.ca/taxrates/bc.htm



from that link you provided:








does that mean my personal amount would be $9,938 + $11,327 ?

im confused about the table, where there is 5% and 15% as tax rate. If it is tax free, why is there a tax rate?


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## Eclectic12 (Oct 20, 2010)

^^^^

The tax rate link is showing BC's as well as combined Feds plus BC tax rates.
For example, if after subtracting the Feds personal amount of $11k, one earned $40K, the first $37,869 would be taxed at 20.06% and the rest taxed at 22.70%.

The link below says:


> Every taxpayer gets a tax credit for the basic personal amount, so any person can earn taxable income of $11,138 in 2014 without paying any federal tax, and can earn anywhere from $7,708 to $17,787, depending on the province or territory in which they live, without paying any provincial or territorial tax.


http://www.taxtips.ca/nrcredits/tax-credits-2014-base.htm

I suspect this was the one intended.

I'll check my tax book or maybe play around with a tax spreadsheet ... but I suspect that where the Fed & Provincial tax credits don't line up ... there will be a small amount from one and none from the other. Once the threshold has been passed, on the remaining taxable dollars, both will be charging income tax.

I suspect the key thing here is that the Fed & Provincial tax credits are tracking across the same income dollars.
For example, if one earned $5K, the tax credit from both would mean no taxes are owed. If the province taxes kick in at $7708 and one earned $8K, there would be $292 tax by the province but nothing taxed by the Feds.

Cheers


*PS*

Also ... if you want to sort through what Tax Tips is trying to explain with their tables, click on the "Understanding the Tables of Personal Income Tax Rates" URL to get a discussion of how they are doing things.


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## xyztrade (Dec 14, 2014)

Eclectic12 said:


> ^^^^
> 
> The tax rate link is showing BC's as well as combined Feds plus BC tax rates.
> For example, if after subtracting the Feds personal amount of $11k, one earned $40K, the first $37,869 would be taxed at 20.06% and the rest taxed at 22.70%.
> ...


thank you for the plentiful information that you have provided as I am still reading it thru.

so as I am still trying to make a sense of all this, my understanding of the "basic personal amount tax credit" is that:

it is a tax credit which is to sent to me after I have reported and paid my tax? and this portion of tax that I had (presumably) paid is subject to the tax rate which in this case is 5.06%(provincial/BC) and 15%(federal)?

PS:

Or is it a credit that I can use as a deduction when I report my tax? so that my total amount of tax can be reduced? and this is why it is called a "non-refundable" tax credit? (omg, still quite confusing :upset


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## xyztrade (Dec 14, 2014)

Ok i read through the refundable and non-refundable tax credit info on CRA website. so basically they are the credits I can use to reduce my tax in the end.

anyways does the simpletax calculator implement this "personal amount tax credit" when it does the calculation?


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## cainvest (May 1, 2013)

xyztrade said:


> anyways does the simpletax calculator implement this "personal amount tax credit" when it does the calculation?


Any of the tax programs will do it automagically for you.


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## Eclectic12 (Oct 20, 2010)

xyztrade said:


> thank you for the plentiful information that you have provided as I am still reading it thru.


No problem ... 




xyztrade said:


> ... Or is it a credit that I can use as a deduction when I report my tax? so that my total amount of tax can be reduced? and this is why it is called a "non-refundable" tax credit? (omg, still quite confusing :upset


It is a non-refundable tax credit as it is "credited" against the taxes owed, *as one is filling out the tax return*. It is built into the process of filling out the return.

It is one of the reasons that calculating the capital gains tax will end up with a big number and then plugging the details in a tax program likely ends up with a smaller number. The tax program is knows about any tax reductions such as this and will automatically apply it. 

The key will be to make sure you also understand any optional tax reduction possibilities so that you can decide if you want use them as well. For example, if by selling other shares that you no longer want to keep, those shares result in a capital loss - you have to have considered this possibility as without action on your part, the possibility won't be used.




cainvest said:


> xyztrade said:
> 
> 
> > Ok i read through the refundable and non-refundable tax credit info on CRA website. so basically they are the credits I can use to reduce my tax in the end.
> ...


Any of the tax software I have used have this done automatically. 
I'm pretty sure the tax spreadsheet I used one year also did the same as the filed amount from the spreadsheet and the NOA that was received has the same numbers.

I seem to recall the paper forms from years ago having a line item to take care of this but I've used tax software so long that I'm not sure whether this is a manual step or not.


Cheers

*PS*

It occurred to me that as the personal amount is applied automatically by software, you might have been doing tax returns without realising the tax credit existed.

Now that you are starting to claim investment sizable capital gains - if you don't have a good knowledge of what can reduce your tax bill, it is likely well worth your time to find out. After all, who wants to pay more taxes than required?


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