**The most common reference to "Capital Gains" pertains to when you sell something for more than what you paid for it.** So for example, if you bought 1 share of Company XYZ at $50.00 and sold it one year later for $100.00 then you have a **capital gain of $50.00 ($100 – $50).**

Your **"Taxable Capital Gain"** is a different story. You have to multiply your capital gain by the **"Capital Gains Inclusion Rate" (which is 50%)**. So now, with that same example you multiply $50 (Capital Gain) by 50% (Capital Gains Inclusion rate) and you are left with a Taxable Capital Gain of $25.

Oh, wait there is more! **The taxable capital gain of $25 is subject to tax at your marginal rate** (let’s assume 50%). So the tax you owe upon selling your stock is $25 (taxable capital gain) x 50% Marginal Tax Rate = $12.50 in tax payable. So you get to keep $37.50 of your $50 profit.

**So the "Capital Gains Inclusion Rate" is a good thing because it means not all your gain is subject to tax.** Another thing to note, is that if your marginal tax rate is lower, you pay less tax on that transaction. Many times when we are "ball-parking" the tax consequences of selling stock in a portfolio – we just look at the capital gain and multiply by 25% (or divide by 4) and we know what the worst case scenario is for the tax bill – it will always be lower than that…

**Capital gains are a desirable form of making a profit with your investments.** You pay a lower rate of tax than on interest income (like from a GIC or a bond). **Interest income is fully taxable, meaning if you were paid $50 in interest – ALL of that is taxable (instead of HALF of it). **See my post on "Interest Income – Think of it as Rent!"