Selling property can trigger tax, but the rules are different depending on whether the property is your home, a rental or something you bought to resell.
How capital gains are taxed
A capital gain is the difference between what you sell for and your adjusted cost base (generally what you paid plus certain costs), less selling costs. 50% of the gain is included in your income and taxed at your marginal rate. The government proposed raising the inclusion rate above 50% for higher gains but later cancelled that proposal, so 50% applies. Rules can change, so confirm current rates.
The principal residence exemption
Gains on a home that qualifies as your principal residence can be fully or partly exempt from tax. A property may qualify if you or your family lived in it during the year. Only one property per family unit can be designated for any given year.
You must still report the sale
Even when the gain is fully exempt, since 2016 you must report the sale of a home on your tax return, including the designation form (Form T2091 for individuals). Missing this can lead to penalties and can even put the exemption at risk.
Situations where the exemption may not apply
- Rental property: a full gain is taxable and you may also face recapture of depreciation you claimed.
- Flipping: if you buy and sell quickly for profit, the CRA may treat the gain as business income, which is fully taxable, not a capital gain. Real estate agents and investors should be especially careful.
- Part-rental homes: renting out part of your home may affect what portion qualifies.
- Moving abroad or becoming a non-resident: special rules apply. See our non-resident landlord article.
- Home office claims: if you claimed part of your home as a business expense, the business-use portion may not qualify.
Records to keep
Keep purchase and sale documents, legal fees, and receipts for capital improvements, since these can increase your cost base and reduce the gain. Our guide to what records to keep explains how long.
If you own a corporation
Property held inside a corporation is not eligible for the principal residence exemption, so think carefully before buying a home through a company. See whether incorporating makes sense for the wider picture.
Our real estate tax accountants can calculate the gain, prepare the reporting and help plan the sale.
This article is general information, not tax advice. Confirm current rules with the CRA or your accountant.
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