For many optometrists, much of their financial planning focuses on practice growth, long-term investing, and retirement preparation. Yet some of the most significant tax consequences arise when an investment, business asset, or practice interest is sold.
Understanding how capital gains, capital losses, and available exemptions are treated can provide valuable context when making major financial decisions.
What Is a Capital Gain?
A capital gain occurs when an asset is sold for more than its adjusted cost base. Common examples include investments held in a non-registered account, real estate that is not a principal residence, or shares of a private corporation, such as your practice.
For example, if an investment was purchased for $100,000 and later sold for $150,000, the capital gain would be $50,000.
Unlike employment or professional income, only a portion of a capital gain is taxable.
Understanding the Capital Gains Inclusion Rate
As of 2026, the capital gains inclusion rate remains at 50%.
This means that only half of a realized capital gain is included in taxable income. Using the previous example, a $50,000 gain would result in $25,000 of taxable income.
While the inclusion rate has changed several times throughout Canadian tax history, capital gains continue to receive preferential tax treatment compared to employment or professional income.
Why Capital Gains Matter for Optometrists
An optometrist may realize capital gains through:
- The sale of shares of an incorporated practice
- The sale of investments held outside registered accounts
- The transfer of certain business assets
- The disposition of recreational or investment real estate
Since practice value often represents a significant portion of an optometrist’s net worth, understanding the tax implications of a future sale becomes increasingly important as retirement approaches.
The Lifetime Capital Gains Exemption (LCGE)
One of the most valuable tax provisions available to Canadian business owners is the Lifetime Capital Gains Exemption (LCGE).
The LCGE allows eligible individuals to shelter a significant portion of capital gains realized on the sale of qualified small business corporation shares. The exemption was increased to $1.25 million, with the limit indexed to inflation beginning in 2026.
When available, the LCGE can significantly reduce or even eliminate tax on a portion of the gain realized on the sale of a professional corporation.
However, eligibility requirements are detailed and must be satisfied both at the time of sale and throughout the 24 months leading up to the transaction.
Key tests must be met regarding:
- The nature of the corporation’s assets
- The ownership of the shares
- The active business use of corporate assets
Seemingly minor issues, such as excess passive investments and permanent life insurance policies accumulating inside a corporation, can sometimes affect eligibility. As a result, corporate structures should be reviewed well before a planned sale to preserve eligibility for the exemption.
What Happens When Investments Decline? Understanding Capital Losses
Not every investment produces a gain.
When an asset is sold for less than its adjusted cost base, the resulting loss is known as a capital loss.
Capital losses generally cannot be used to reduce employment income, professional income, or other ordinary sources of earnings, but rather are applied against taxable capital gains.
This creates several planning opportunities.
A capital loss may be used to:
- Offset taxable capital gains realized in the current year
- Carry back against taxable capital gains from any of the previous three taxation years
- Carry forward indefinitely to offset future taxable capital gains
This flexibility can be valuable during periods of market volatility, particularly when gains and losses exist across different holdings.
Looking Beyond the Tax Result
Although tax considerations are important, they are only one part of a larger financial picture that may include retirement planning, liquidity needs, risk management, and estate objectives.
Tax on a capital gain is often the result of a successful investment outcome.
Conversely, realizing a loss solely for tax reasons may not improve long-term financial results if the investment strategy itself no longer aligns with broader objectives.
For optometrists who already have significant exposure to a single business asset through their practice, this balanced perspective can be particularly valuable. The tax treatment of gains and losses matters, but so does maintaining an investment portfolio that supports diversification and long-term financial stability.
A Useful Framework
Capital gains rules influence investment decisions, business succession planning, and retirement outcomes throughout an optometrist’s career.
The inclusion rate determines how gains are taxed, the LCGE may provide significant relief on the sale of qualifying practice shares, and capital losses can help offset gains when investment results are uneven.
Understanding how these rules work provides a stronger foundation for making informed financial decisions over time.
Have more questions? We’re here to help.
Roxanne Arnal is a Certified Financial Planner®, Chartered Life Underwriter®, Certified Health Insurance Specialist, former optometrist, Professional Corporation President, and practice owner. She is dedicated to empowering individuals and their wealth by helping them make smart financial decisions that bring more joy to their lives.
This article is for information purposes only and is not a replacement for personalized financial planning. Errors and omissions excepted.
ROXANNE ARNAL,
Optometrist and Certified Financial Planner
Roxanne Arnal graduated from UW School of Optometry in 1995 and is a past-president of the Alberta Association of Optometrists (AAO) and the Canadian Association of Optometry Students (CAOS). She subsequently built a thriving optometric practice in rural Alberta.
Roxanne took the decision in 2012 to leave optometry and become a financial planning professional. She now focuses on providing services to Optometrists with a plan to parlay her unique expertise to help optometric practices and their families across the country meet their goals through astute financial planning and decision making.
