Capital gains tax on property sale

Capital gains on property sales in Canada — the basics

When you sell a property that is not your principal residence — a rental, a cottage you did not designate, an investment condo — the gain is taxable. Canada taxes only part of a capital gain: for individuals, 50% of the gain (the “inclusion rate”) is added to your income for the year and taxed at your marginal rate.

What happened to the 66.67% inclusion rate?

Budget 2024 proposed raising the inclusion rate to two-thirds on gains above $250,000 a year, originally from June 25, 2024. The change was never enacted: in January 2025 its start was deferred to January 1, 2026, and on March 21, 2025 the government cancelled it outright. The inclusion rate for individuals remains 50% on every dollar of gain, with no $250,000 threshold. If you filed or planned on the higher rate, revisit it with your accountant.

How the math works step by step

1. Adjusted cost base (ACB) = original purchase price + acquisition costs + capital improvements (a new roof, an addition — not routine repairs)
2. Net proceeds = sale price − selling costs (commission, legal, marketing)
3. Capital gain = net proceeds − ACB
4. Taxable capital gain = 50% of the gain
5. Tax = taxable gain × your marginal rate, plus tax on any recaptured CCA

Principal residence exemption

A home you designate as your principal residence is normally exempt for the years it is designated, and you must report the sale on your return to claim it (CRA). The rules are specific:

• A family unit can designate only one home per year
• You must “ordinarily inhabit” the property in the years you designate it
• If you rented the home out for some years without an election, only the designated years are sheltered and the rest of the gain is taxable pro rata
• The “plus one” year in the formula covers the year you buy one home and sell another

CCA recapture — the trap for landlords

Capital cost allowance (depreciation) claimed on a rental building does not change your ACB — it reduces the building's undepreciated capital cost. On sale, CCA you claimed is generally recaptured and added to income in full, not at 50%. Many landlords skip claiming CCA to avoid recapture; others claim it deliberately in high-income years. Enter your expected recapture separately above.

Flips and the residential property flipping rule

For sales on or after January 1, 2023, a gain on a housing unit you owned for less than 365 consecutive days is deemed business income and fully taxable — not a capital gain — unless the sale follows a listed life event such as a death, separation, new job or disability. A loss on such a flip is deemed nil. This calculator does not apply that rule; if it covers your sale, the whole profit is taxable at your marginal rate.

Reducing the bill

• Net capital losses from other investments can offset capital gains in the current year, be carried back three years, or carried forward indefinitely
• Section 45(2) election: when you convert a principal residence to a rental, this election can keep it designated as your principal residence for up to four years while rented
• Timing: selling in a lower-income year lowers the marginal rate the gain is taxed at

Worked example — rental sale

Bought for $540,000, $35,000 of capital improvements over eight years, sold for $820,000 with $60,000 of commission and legal:

• ACB: $540,000 + $35,000 = $575,000
• Net proceeds: $820,000 − $60,000 = $760,000
• Capital gain: $760,000 − $575,000 = $185,000
• Taxable capital gain: $185,000 × 50% = $92,500
• Tax at a 43% marginal rate: about $39,775

A $400,000 gain works the same way: $200,000 taxable, about $86,000 of tax at 43%.

Related

• Net proceeds from selling
• Rental cash flow
• BRRRR / flip analysis