Capital gains tax on property sale
50% of gains under $250k/yr are taxable; 66.67% above. CCA you claimed during ownership recaptures 100%. Principal residence is exempt — this calculator is for rentals + flips.
Your scenario
Result
Talk to your accountant 12 months before selling. Strategies (loss harvesting, partial PRE elections) can save tens of thousands.
Capital gains on property sales in Canada — the basics
When you sell a property that's NOT your principal residence — a rental, a flip, a cottage you didn't designate, an investment condo — the gain is taxable. The Canadian system uses a partial inclusion rate, meaning only a portion of the gain is added to your taxable income. For 2024 and later, the inclusion is 50% on the first $250,000 of annual gains, and 66.67% above.
The 2024 rule change
Effective June 25, 2024, the inclusion rate jumped from a flat 50% to a two-tier 50% / 66.67%:
- First $250,000 of annual capital gains: 50% inclusion (unchanged)
- Gains above $250,000: 66.67% inclusion (a hike from 50%)
The $250k threshold is per-year per-taxpayer, NOT lifetime. So a $400k gain in 2026 triggers: $250k × 50% + $150k × 66.67% = $225,000 taxable.
How the math works step-by-step
- Adjusted Cost Base (ACB) = original purchase price + capital improvements (new roof, addition, kitchen reno) − any CCA claimed in prior years
- Net Sale Proceeds = sale price − selling costs (real estate commission, legal, marketing)
- Capital gain = Net Sale Proceeds − ACB
- Taxable portion = 50% of gain (up to $250k) + 66.67% of gain above $250k
- Tax owed = Taxable portion × your marginal rate
Principal residence exemption (PRE)
Your principal residence is fully exempt from capital gains tax — the largest single tax benefit available to Canadian homeowners. But the rules are specific:
- Only one home per family per year can be designated
- You must “ordinarily inhabit” the property in the years you claim PRE
- If you owned the home but lived elsewhere for some years (e.g., rented it out), only the “designated” years are exempt — the rest are taxable on a pro-rata basis
- The 1+ rule: you get one bonus year of designation, useful when buying and selling in the same year
CCA recapture — the trap for landlords
If you claimed Capital Cost Allowance (depreciation) during ownership, every dollar of CCA claimed is “recaptured” on sale and added to your income at 100% — not 50%. Many landlords avoid claiming CCA specifically to dodge recapture; others claim it strategically when their marginal rate is low.
Flips and the new anti-flipping rule
Since January 1, 2023, properties sold within 365 days of purchase are treated as inventory rather than capital property — meaning 100% of the profit is fully taxable as business income (not capital gain). Limited exceptions exist for death, breakdown of relationship, job relocation, disability, etc.
If you bought intending to flip and sold within a year, expect CRA to fully tax the profit at your marginal rate.
Tax-loss harvesting + partial PRE elections
Two common reduction strategies:
- Capital loss carry-back: Losses on stocks or other capital property can offset capital gains for up to 3 prior years or carried forward indefinitely
- Section 45(2) election: When converting a principal residence to a rental, this election preserves your PRE designation for up to 4 years even while the property is rented
Worked example — rental sale
Bought for $540,000, $35,000 in capital improvements over 8 years, sold for $820,000 with $60,000 in commission + 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: $185,000 × 50% = $92,500 (under $250k threshold)
- Tax at 43% marginal: ~$39,775 owed