Corporate Capital Gains Tax Calculator for an Ontario Corporation
When a corporation sells real estate, shares or business assets, the taxable half of the capital gain is taxed at the Ontario investment income rate, a large slice of that tax is refundable, and the untaxed half lands in the capital dividend account where it can come out to you tax free. This calculator separates recapture of capital cost allowance from the capital gain, works both streams through the corporate rate, and then follows the money out to the shareholder.
total effective tax rate
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How the Proceeds Split Between Recapture and Capital Gain
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Corporate Tax, NERDTOH and the Capital Dividend Account
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Paying It Out: The Integrated Result
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Points That Decide This
What to Do Next
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Disclaimer: A corporation’s taxable capital gain is the inclusion-rate portion of its capital gain under paragraph 38(a) of the Income Tax Act, computed under section 40 from proceeds of disposition less the adjusted cost base and the outlays and expenses of disposition, each as defined in section 54, and reported on Schedule 6, Summary of Dispositions of Capital Property. Where the property is depreciable, subsection 13(1) includes in income the recapture of capital cost allowance to the extent the lesser of proceeds of disposition and capital cost exceeds the undepreciated capital cost of the class, and that amount is ordinary income rather than a capital gain; only proceeds above the original capital cost produce a capital gain. A terminal loss may arise instead under subsection 20(16) where the class is emptied. The taxable half of a capital gain of a Canadian-controlled private corporation is aggregate investment income within subsection 129(4), taxed at the basic rate in subsection 123(1) reduced by the abatement in section 124, increased by the additional refundable tax in section 123.3, and subject to Ontario tax under the Taxation Act, 2007; the refundable portion is added to non-eligible refundable dividend tax on hand and recovered as a dividend refund under subsection 129(1) when taxable dividends are paid. The non-taxable portion of the gain is added to the capital dividend account defined in subsection 89(1) and may be paid as a capital dividend on an election under subsection 83(2), but an election in excess of the balance attracts tax under Part III at the rate in subsection 184(2), and subsection 83(2.1) can recharacterise a capital dividend as a taxable dividend where shares were acquired to obtain it. The rates, the inclusion rate and the personal dividend rates used here are inputs and defaults that must be replaced with the figures in force for the corporation’s tax year and the shareholder’s circumstances, and the characterisation of recapture as active or property income depends on facts this tool cannot see. This page is general information, not tax advice.
Recapture Is Not a Capital Gain, and That Is Where the Money Goes
This is the single most expensive mistake made on a corporate property sale. Where the corporation claimed capital cost allowance on a building or on equipment, the sale does not produce one number. It produces two, and they are taxed completely differently.
Proceeds up to the original capital cost of the asset claw back the capital cost allowance already deducted. That recapture is ordinary income, fully taxable, with no half-inclusion and no addition to the capital dividend account. Only the proceeds above the original capital cost are a capital gain, and only that gain gets the favourable treatment everyone has in mind when they start the calculation.
A rental property sold by a corporation is usually recapture plus a capital gain, not just a gain. If the corporation bought a building for $800,000, claimed capital cost allowance down to an undepreciated balance of $650,000, and sells for $1,200,000, then $150,000 is recapture taxed as ordinary income and only the amount above the $800,000 original cost is a capital gain. Treating the whole $400,000 as a half-taxable gain overstates the capital dividend account and understates the tax, often by six figures.
The calculator asks for the original capital cost and the undepreciated capital cost separately for exactly this reason. Please take both from the corporation’s own Schedule 8 capital cost allowance working papers rather than estimating them, because the recapture figure is arithmetic, not judgement, and the CRA has the same numbers.
The Taxable Half and the Ontario Investment Income Rate
The taxable portion of a capital gain realised by a Canadian-controlled private corporation is aggregate investment income. It is not active business income, so the small business deduction does not touch it, and it is taxed at a rate built up from four components.
| Component | Rate | What It Is |
|---|---|---|
| Federal basic rate | 38% | Subsection 123(1), before any reduction |
| Federal abatement | (10%) | Section 124, for taxable income earned in a province |
| Additional refundable tax | 10.67% | Section 123.3, on aggregate investment income of a CCPC |
| Ontario corporate rate | 11.5% | General rate under the Taxation Act, 2007 |
| Combined rate on investment income | 50.17% | The rate applied to the taxable half of the gain |
Every one of those four components is an editable input in the calculator, because rates move and the general rate reduction, the abatement and the provincial rate have all been adjusted before. Please confirm each against the figures in force for the corporation’s tax year rather than relying on the defaults. The same build-up drives the site’s corporate investment income tax calculator, which explains the refundable mechanism in more detail than this page repeats.
Half of just over fifty per cent looks like about twenty-five per cent on the whole gain, and that is roughly where a corporate capital gain sits before anything is paid out. It is a higher headline rate than most owners expect, which is why the refundable portion and the capital dividend account matter so much to the real answer.
The Refundable Portion and Which Stream Feeds It
A little over thirty per cent of the taxable capital gain is not permanent tax. It is added to non-eligible refundable dividend tax on hand, and the corporation recovers it as a dividend refund when it pays taxable dividends, at a fixed proportion of the dividends paid. Money sitting in that account is a receivable the corporation only collects by distributing.
Be careful about which stream generates the refundable tax. The taxable half of the capital gain is aggregate investment income and does add to the refundable pool. Recapture that is part of an active business does not, because active business income is not aggregate investment income. Recapture arising in a specified investment business, which is what most incorporated rental operations are, is property income and does add to the pool. The calculator offers both characterisations because the answer turns on facts about employees and operations, not on the asset itself.
The Capital Dividend Account, Where the Real Planning Sits
The portion of the capital gain that is never taxed is added to the capital dividend account. On an election filed with the directors’ resolution, that balance comes out to the shareholders as a capital dividend with no personal tax at all. Not a preferential rate. No tax.
This is the most valuable single point on the page. On a large gain the capital dividend can be the difference between the owner keeping roughly three quarters of the proceeds and keeping barely half. It is also easy to lose. The account is a running balance, so a prior capital loss reduces it, the election has to be filed properly and on time, and an election for more than the balance attracts a penalty tax on the excess under Part III rather than a simple correction.
Please do not elect on an estimate. Where recapture has been mistaken for a capital gain, the capital dividend account is overstated, and an election on the overstated figure produces a Part III liability at a punitive rate on the excess. Reconstruct the account from the corporation’s history before electing. Our capital dividend account calculator works through the balance itself.
Integration: Following the Money Out to the Shareholder
The corporate tax is only the first layer. The full path has four steps, and the calculator shows all of them, because the corporate number on its own tells you very little about what the owner actually receives.
First, the corporation pays tax on the taxable half of the gain at the investment income rate and on the recapture at whichever rate applies to it. Second, the non-taxable half is paid out as a capital dividend with no personal tax. Third, what is left is paid as a taxable dividend, which triggers the dividend refund and returns part of the corporate tax to the corporation. Fourth, the shareholder pays personal tax on the taxable dividend at the non-eligible dividend rate.
Add the corporate tax, subtract the dividend refund, add the personal tax, and you have the total integrated tax. The calculator expresses it both as a dollar figure and as an effective rate on the income the sale generated, and it also shows what the tax would have been had the property been held personally, which is the comparison most owners actually want.
| Layer | What Happens | Effect on the Owner |
|---|---|---|
| Corporate tax on the taxable half | Investment income rate applies | Reduces cash in the corporation |
| Refundable portion | Added to NERDTOH | Recovered only when dividends are paid |
| Capital dividend | Non-taxable half paid on election | Reaches the owner with no personal tax |
| Taxable dividend | Balance paid as a non-eligible dividend | Personal tax, offset by the dividend refund |
| Recapture | Fully taxable ordinary income | No capital dividend, and refundable only if property income |
The Inclusion Rate, Which Has Been Moved and Moved Back
The inclusion rate is an input rather than a constant, and deliberately so. It has been the subject of announced increases that were then deferred and abandoned, and it drives two figures at once: the taxable capital gain and, as its mirror image, the addition to the capital dividend account. A change in the inclusion rate does not simply raise the tax; it shrinks the tax-free dividend by the same amount.
Please confirm the rate in force on the date of disposition before relying on any output. Where a disposition straddles an announced change, the date the property actually changed hands governs, and a sale that was agreed in one period but closed in another needs the closing date checked carefully.
Selling Shares Instead of Assets
Where the corporation holds shares of another company rather than the underlying assets, there is no recapture, the whole gain is a capital gain, and the capital dividend account addition is proportionately larger. That is one reason a vendor usually prefers a share sale while a purchaser usually prefers an asset sale, and the gap between the two positions is often where the negotiation happens. Our share sale against asset sale calculator runs that comparison directly.
Where the shares are qualified small business corporation shares held by an individual, the lifetime capital gains exemption may shelter the gain entirely, but that exemption belongs to individuals and not to corporations. A corporation selling shares of a subsidiary cannot claim it, which is a common and costly misunderstanding. If the ultimate goal is to use the exemption, the structure has to be addressed well before a sale, and that belongs in tax planning rather than in the closing documents.
What This Calculator Does Not Cover
- The lifetime capital gains exemption on qualified small business corporation shares and qualified farm or fishing property, which is available to individuals and not to a corporation
- Section 85 rollovers and other deferrals that can move property into or out of a corporation without triggering the gain
- Reserves under subparagraph 40(1)(a)(iii) where the proceeds are received over several years, which spread the gain rather than crystallising it at once
- Terminal losses under subsection 20(16), which arise where the class is emptied for less than its undepreciated capital cost and are fully deductible rather than half deductible
- The change-of-use rules in section 45 and the deemed dispositions they produce when a property moves between income-earning and personal use
- Allowable business investment losses and the ordering rules that apply when they interact with capital gains and non-capital losses
- GST and HST on the sale, including the self-assessment rules, the section 167 election and whether the sale is taxable, exempt or zero-rated under the Excise Tax Act
- Land transfer tax, which the purchaser generally bears but which changes the price the parties agree
- Provinces outside Ontario, whose corporate and personal rates differ and change the integrated answer materially
- Eligible refundable dividend tax on hand and the general rate income pool, which affect the mix of eligible and non-eligible dividends paid
A large disposition is worth modelling before the closing date, not after it. Our corporate tax return filing service covers the Schedule 6 reporting, the Schedule 8 recapture, the capital dividend account reconstruction and the election itself.
Frequently Asked Questions
Capital gains inside a corporation, recapture, the CDA and the integrated rate.
Related Calculators and Guides
More tools for corporate dispositions, investment income and payout planning.
Get the Recapture and the CDA Right Before You Close
Send us the purchase documents, the capital cost allowance history and the draft sale agreement. We will separate the recapture from the gain, reconstruct the capital dividend account, and set out the payout that leaves the most in your hands.