Is money received for granting an option to buy my property taxable as a capital gain?

Yes. When you grant someone an option to purchase your property, the premium you receive for that option is generally a capital gain under the federal Income Tax Act — the option is a right that is a "property" in itself, and the proceeds of granting it are proceeds of disposition of that right.

However, the tax treatment becomes more complex if the option is exercised. When the buyer exercises the option and actually purchases the property, the proceeds of the option are added to the sale proceeds and the overall capital gain on the property is calculated on the combined amount. In other words, the option payment does not escape tax when the sale completes — it is rolled into the overall transaction.

If the option expires without being exercised, the option payment is generally a capital gain to you in the year the option expires. You do not recognize it as income when you receive it — you recognize it when the option expires or is exercised.

These rules have important implications for real estate transactions where option agreements are used, including commercial developments, land assemblies, and lease-option arrangements. The characterization of whether a transaction is an option or a right of first refusal matters too — the tax treatment is not identical.