How Do You Reduce Capital Gains Tax in Canada?

Methods of reducing capital gains tax in Canada include sheltering assets inside a registered plan and giving away assets. Canada's capital gains tax exemption can also be very useful to taxpayers who qualify, states TurboTax.

Canadian residents may be subject to capital gains tax when they sell assets or investments for more than the amount they paid. A Canadian resident is defined as anyone who lives in Canada for a minimum of 183 days during the year. Individuals can also be considered full-time residents of Canada if they live in another country but rent or lease a home in Canada, according to The Law Dictionary.

Capital gains taxes are not required on the sale of either a principal residence or an investment inside a registered plan, such as an Registered Retirement Income Fund or Registered Retirement Savings Plan, as TurboTax explains. On non-registered accounts, however, the capital gains tax is based on the market value of the investment sold minus the acquisition cost of the investment.

Individuals can also reduce their capital gains taxes and even incur capital losses by donating stock to charities or family members. For example, if a taxpayer donates stock currently worth $1,000, which originally cost much less, he is entitled to a $1,000 charitable deduction for tax purposes. Donating an asset does not trigger a capital gains tax, but it does result in a capital loss that can then be applied to capital gains from the taxpayer's sale of other assets, according to TurboTax.

In addition, owners of successful small businesses, farms and fishing properties can qualify for a capital gains exemption when they sell these properties. The lifetime capital gains exemption is $750,000. To be eligible for the exemption, a business property must use a minimum of 90 percent of its assets in active business, primarily in Canada. Other qualifications apply to farming and fishing properties, notes TurboTax.