Capital Gains Tax When Selling a Home in Canada

When you sell a home in Canada, one question matters more than almost any other for your bottom line: will you owe capital gains tax? The reassuring answer for most people is no — your principal residence is generally exempt. But the picture changes for rental properties, cottages, and inherited homes. Here's a plain-English guide to who pays, who doesn't, and how to plan.

Key takeaways

• Your principal residence is generally exempt from capital gains tax when you sell.
• Rental properties, second homes and cottages can be subject to capital gains tax.
• A capital gain is the increase in value from what you paid (plus eligible costs) to what you sell for.
• Inherited properties have their own rules — the gain after the date of death may be taxable.
• Tax rules and inclusion rates change — confirm current figures with the CRA or a tax professional.

What is a capital gain on a home?

A capital gain is the profit you make when you sell a property for more than your adjusted cost — that's roughly what you paid, plus eligible purchase and improvement costs. If you sell for less than your cost, you have a capital loss instead. Whether that gain is taxable depends entirely on how the property was used.

Capital gains tax is a key part of your net proceeds, alongside commission and legal fees. For the full picture of what selling costs, see the real cost of selling a home in Ontario and closing costs when selling a house.

The principal residence exemption

The single most important rule for most sellers is the principal residence exemption. If the home you're selling was your principal residence for every year you owned it, the capital gain is generally fully exempt — you owe no capital gains tax. This is why the typical homeowner selling the place they live in pays nothing.

Even though it's exempt, the sale of a principal residence must still be reported on your tax return. You can only designate one property per family unit as a principal residence for a given year, which matters if you own more than one home.

A family can claim one home per year

If you own both a city home and a cottage, you'll need to choose which one to designate as your principal residence for each year — a decision that affects how much of each property's gain is sheltered. A tax professional can help you optimize this.

When capital gains tax does apply

The exemption is for your home — not for every property you own. Capital gains tax generally applies when the property wasn't your principal residence for the whole time you owned it.

Common situations where tax may apply include selling a rental you never lived in, a cottage that was never your principal residence, or a property you bought to flip. If you rented out part of your home or used it for business, a portion of the gain may be taxable too.

Special cases: rentals and inherited homes

Rental properties are a frequent source of capital gains tax, because the principal residence exemption generally doesn't apply to a home you didn't live in. If you also claimed depreciation (capital cost allowance) over the years, selling can trigger additional tax. Read more in taxes on rental income in Canada.

Inherited homes have their own treatment: the gain up to the date of death is usually settled through the deceased's final return (where the principal residence exemption may apply), while any further increase before you sell may be taxable. We cover this in detail in how to sell an inherited property in Ontario.

Rates and rules change — verify before you file

The capital gains inclusion rate and related rules have changed over time. Don't rely on old figures: confirm the current rate and your specific situation with the Canada Revenue Agency or a qualified tax professional before you file.

Keep more of your gain with HOMEH

Tax is set by the government — but your commission isn't. HOMEH lists for a 1% listing fee instead of the traditional ~5% commission, or free when you also buy with HOMEH within 6 months, or $395 + HST with a Mere Posting, which protects more of your sale proceeds.

Estimate your net proceeds

See what you'll actually keep after costs with the HOMEH selling cost calculator. Eligible sellers list for 1%, or free when they also buy with HOMEH within 6 months, or $395 + HST with a Mere Posting.