# Capital gain Canonical: https://web4.xpay.bi/en/wiki/wp-en-301870/ Language: en Published: 2026-10-25T22:43:20.141Z Updated: 2026-10-25T22:43:20.141Z Capital gain is an economic concept defined as the profit earned on the sale of an asset that has increased in value over the holding period. An asset may be tangible property, a car, a business, or intangible property such as shares. ## Key facts ## Overview Capital gain is an economic concept defined as the profit earned on the sale of an asset that has increased in value over the holding period. An asset may be tangible property, a car, a business, or intangible property such as shares. A capital gain is when the selling price of the asset is greater than the original purchase price. In the event that the purchase price exceeds the sale price, a capital loss occurs. Capital gains are often subject to taxation, of which rates and exemptions differ between countries. The history of capital gain originates at the birth of the modern economic system and its evolution has been described as complex and multidimensional by a variety of economic thinkers. The concept of capital gain may be considered comparable with other key economic concepts such as profit and rate of return, however, its distinguishing feature is that individuals, not just businesses, can accrue capital gains through everyday acquisition and disposal of assets. ## History The history of capital gain in human development includes conceptualizations from pre-1865 slave capital in the United States, to the development of property rights in France in 1789, and even other developments much earlier. The official beginning of a practical application of capital gain occurred with the development of the Babylonian's financial system circa 2000 B.C. This system introduced treasuries where citizens could deposit silver and gold for safekeeping, and also transact with other members of the economy. As such, this allowed the Babylonians to calculate costs, sale prices and profits, and hence capital gains. ## Calculation Capital gain is generally calculated by taking the sale price of an asset (capital proceeds) and subtracting its cost base, which includes the purchase price and any incurred expenses. The resulting value is the capital gain, or a capital loss if the result is negative. In practice, many jurisdictions provide supplementary methods for calculation; for instance, the Australian tax system allows eligible taxpayers to choose between the "discount method", the "indexation method", or the "other method" to achieve the most favorable tax outcome. ## Australia The Australian Taxation Office (ATO) lists three methods of calculating capital gain for Australian citizens and businesses, each one designed to lower the final resulting value of the eligible party's gain. The first is the discount method, whereby eligible individuals or super funds may reduce their stated capital gain value by 50% or 33.33% respectively. The second is the indexation method, which allows individuals and firms to apply an index factor to increase the base cost of the asset, thereby decreasing the final capital gain value. The third is the ‘other’ method, and involves use of the general capital gain formula whereby the base costs of the asset are subtracted from its final sale price. ## Canada The Canada Revenue Agency (CRA) includes several unique guidelines for calculating individual or business capital gain. The CRA states that individuals may exclude from their capital gains calculation the following types of donations: “shares in the capital stock of a mutual fund corporation… prescribed debt obligations that are not linked notes, ecologically sensitive land… (or) a share, debt obligation, or right listed on a designated stock exchange”. Note that for the exclusion to be approved the donation must be to a qualified donee, and also that capital losses arising from such donations are not eligible to be excluded from an individual's reporting. The CRA states that following a capital gain, individuals may be able to either claim a reserve or claim a capital gains deduction. Individuals are eligible to claim a reserve when the capital gain does not occur as one lump-sum payment but rather a series of payments over time. In order to calculate the reserve, Canadian individuals must calculate their capital gain via the regular sale price minus cost price method, and subsequently subtract the amount of approved reserve for the year. A capital gains deduction is the second form of capital gain calculation which the CRA offers. It is “a deduction that you can claim against taxable capital gains you realized from the disposition of certain capital properties”. Only residents from Canada throughout the previous year are eligible to claim the deduction, and only certain capital gains are eligible for the deduction to be applied. ## Germany The German tax office levies different capital gains tax based on the asset sold and the holding period. Taxpayers pay a flat 25% capital gains tax (Abgeltungsteuer) on profits from the sale of stocks, plus a solidarity surcharge of 5.5% on the tax amount. If the individual is a church member, church tax is also applied, resulting in a total effective tax rate of 27.82% in Baden-Württemberg and Bavaria, and 27.99% in all other federal states. Taxes on the sale of real estate differ significantly: gains from private sales are generally tax-free if the property was held for more than ten years. Furthermore, a property can be sold tax-free regardless of the holding period if it was used exclusively for personal residential purposes between acquisition and sale, or in the year of sale and the two preceding years. Otherwise, profits are taxed at the individual's personal income tax rate. ## Pakistan In Pakistan, capital gains are computed by subtracting the asset’s adjusted cost (including any allowable improvement expenses) from its disposal proceeds under the Income Tax Ordinance, 2001. The tax rate applied depends on the type of asset, its acquisition date, and the holding period. For example, listed securities acquired on or after 1 July 2024 are generally subject to a flat 15% tax. While prior to that, shorter holding periods attracting higher rates and longer holdings sometimes qualifying for reduced rates or exemptions. Likewise, gains on immovable property are taxed on a sliding scale—short-term gains incur higher rates, while those from assets held over a longer period benefit from progressively lower rates or full exemptions. ## United Kingdom The United Kingdom HM Revenue and Customs (HMRC) office lists certain assets which are eligible to be considered as capital gains. These include “most personal possessions worth £6,000 or more, apart from your car”, property that is not considered your primary dwelling, your main dwelling if it exceeds a certain size or has been used for business, any shares that are not in an individual savings account or personal equity plan, and any business assets. HMRC also lists certain assets which are exempt from accruing capital gains, including any gains made from individual savings accounts or personal equity plans, “UK government gilts and Premium Bonds”, and any winnings from lottery, betting or pools. HMRC states that only gains made above an individual's allowance are eligible to be taxed, and no tax is payable for individuals who accrue gains which are under their Capital Gains Tax allowance. In order to calculate an individual's capital gain, HMRC requires calculation of the gains for each asset in the relevant 12-month period, which are then summed together and finally reduced by the amount of allowable losses deduction. HMRC also states that when reporting a loss, “the amount is deducted from the gains you made in the same tax year”. ## United States The United States Internal Revenue Service (IRS) also provides guidelines on calculating capital gains. The IRS defines a capital gain or loss as “the difference between the adjusted basis in the asset and the amount you realized from the sale”. Capital gains are also further defined as either short term or long term. Short term capital gains occur when you hold the base asset for less than one year, while long term capital gains occur when the asset is held for over one year. Ownership dates are to be counted from the day after the date which the asset was acquired, through to the day which the asset is sold. ## Taxation of gains There are typically significant differences in the taxation of capital gains earned by individuals and corporations, and the OECD recognizes three simple categories of individual capital income which are taxed by its member nations around the world. These include dividend income, interest income, and capital gains realized through property and shares. The OECD average dividend tax rate is 41.8%, whereby dividends are often taxed at both the corporate and individual level and categorized as corporate income first and personal income second. However, certain countries such as Australia, Chile, Mexico, and New Zealand employ imputation tax systems which allow corporations to redeem imputation credits for tax paid at the corporate level, thus reducing their tax burden. The OECD average interest income tax rate is 27%, and almost all OECD countries excluding Chile, Estonia, Israel, and Mexico tax an individual's total nominal interest income. ## Eligible assets Capital gain can only be earned on the profitable sale of assets. A former Chief Accountant of the Securities Exchange Commission defined an asset as: “Cash, contractual claims to cash or services, and items that can be sold separately for cash”. Practical applications of this definition primarily include stocks and real estate. ## Stocks A capital gain may be earned through the sale of financial assets such as stocks. When one sells a stock, they would subtract the cost price from the sale price to calculate their capital gain or loss. ## Sources - Capital gain · Wikipedia: https://en.wikipedia.org/?curid=301870 Source: Wikipedia contributors — https://en.wikipedia.org/?curid=301870&oldid=1375842266 Licence: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation notice: Reformatted for XPay; the source may be abridged, restructured or translated. Consult the cited revision for the original.