Do I Pay Tax if I Sell My House and Only Part Is Exempt in Canada?
This answer covers Canadian federal tax law, which applies in every province.
Yes, you may owe tax on the part of the gain that is not exempt. The exempt portion comes from a formula in the Income Tax Act that compares the years the home is designated, plus one, with the years you owned it, counting only years ending after you acquired it. A lawyer or accountant can confirm the calculation. If the home was your principal residence for all years owned except one, the extra year in B makes the whole gain exempt, unless you were not a Canadian resident in the year you bought the new property.
The capital gain is your proceeds minus your adjusted cost base and selling costs, and half of it is taxable. You report the sale in Part 2 of Schedule 3 and make the designation in Part 1. A gain on an income-producing portion goes on line 13800. If only part of the home was your residence and the rest earned income, the price and cost base are split by square metres or number of rooms, if the split is reasonable.
Inclusion rates can change over time, so confirm the rate in force for your year of sale. The tax you pay on the taxable part then depends on your other income that year.
Key takeaways
- The exempt portion of the gain depends on the years the home was designated compared with the years you owned it.
- If the home was your principal residence for all years owned except one, the extra year in the formula makes the whole gain exempt, unless you were not a Canadian resident in the year you bought the new property.
- Half of the capital gain is taxable, calculated as proceeds minus adjusted cost base and selling costs.
- You report the sale on Schedule 3, with a gain on an income-producing portion going on line 13800.