What Is an Inclusion Rate?

by Craig Anthony

1 min read

An inclusion rate is the portion of capital gains or losses taxpayers should include on their tax returns. For example, assume you have a capital gain of $200,000. If the inclusion rate is 50%, you report a $100,000 capital gain on your income tax return. If you have a capital loss of $50,000, you could claim $25,000 based on a 50% inclusion rate. In most cases, you report gains the year they occur; if you have capital losses that year, you can use them to reduce the current year’s gains. If you have more losses than gains, you can roll the losses back three years or forward indefinitely. When carrying losses forward, you may occasionally have to deal with different inclusion rates. Before 1988 and between 2001 and 2016, the Canada Revenue Agency assessed a 50% inclusion rate of capital gains and losses, but the rate was 66.67% from 1988 to 1989 and 75% from 1990 to 1999. If you want to apply losses from these years to a current year’s tax return, you have to do a calculation to make up for different rates. To get the new rate, divide the inclusion rate in the current tax year by the rate from the year when you incurred the loss. For instance, if you’re applying a $10,000 loss from 1990 to a 2016 tax return, you divide 50% by 75%. That makes the new rate of inclusion 66.67% and means you can include $6,667 from that loss. If you deal with capital gains or losses, understanding inclusion rates can help you avoid errors on your tax return. If you don’t apply these rates correctly, you could end up paying more tax than you really owe.

References & Resources

Related Articles

Understanding Interest Rates: Nominal, Effective, and Real Rates

Interest rates are used everywhere in the finance and investment industries, from…

Read more

Why Millennials Make Great Employees

Millennials are commonly defined as people who are born between the years…

Read more

Burn Rate: How Much Cash Does Your Company Use?

The burn rate is the pace at which you are spending down…

Read more