How to Calculate Capital Gains on a Property Sale in Ontario

You are selling a property, perhaps a rental, a cottage or a former home, and you want a rough idea of the tax before you sign. The calculation follows the same steps each time, and most of the work is gathering the right numbers.

This article walks through those steps in order. It is general information, and a lawyer or accountant should confirm the figures for your own sale.

The basic formula

Capital gain equals proceeds of disposition minus the sum of your adjusted cost base and the outlays and expenses of the sale. Section 40(1)(a) of the Income Tax Act sets out this computation.

Step 1 and 2: proceeds and adjusted cost base

Proceeds of disposition are usually the amount you received or are to receive. For most sales, that is the price in the agreement of purchase and sale, though adjustments on closing can affect what you actually receive.

Adjusted cost base is usually the cost of the property plus any expenses to acquire it, such as commissions and legal fees. Capital improvements are added, but current expenses such as maintenance and repairs are not. Land transfer taxes are added to the property's cost rather than deducted as a rental expense.

• Include the purchase price and your legal fees on buying.
• Include land transfer taxes paid on the purchase.
• Add real capital improvements, such as a new addition.
• Leave out routine repairs and maintenance.

The difference between a repair and an improvement matters. A repair that simply restores a property to its original condition is generally a current expense, while a capital expense generally gives a lasting benefit or advantage. Keep receipts so you can show which is which.

Step 3: outlays and expenses of selling

Outlays and expenses of selling are amounts incurred to sell a capital property. Examples are fixing-up costs, finders', brokers' and surveyors' fees, legal fees, transfer taxes, commissions and advertising. They reduce the gain, and they cannot be deducted from other income.

If you sell a rental property, the disposition is listed on Schedule 3 with the land and the building reported separately. Only the gain on the part used to produce income is reported on line 13800.

Step 4: apply the inclusion rate

Paragraph 38(a) of the Income Tax Act sets the taxable capital gain at one-half of the capital gain, and paragraph 38(b) sets the allowable capital loss at one-half of the capital loss. The CRA states that the capital gains inclusion rate for 2025 is one-half.

You may have heard about a proposed increase. Budget 2025 confirmed the government would not proceed with the capital gains inclusion rate increase, including for corporations, and section 38 still sets one-half for all taxpayers. Rates and rules can change, so confirm the rate for the year of your sale.

The taxable amount is added to your income and taxed at your marginal rates. If the result is a loss rather than a gain, the allowable capital loss is one-half of the capital loss. How that loss can be used depends on your situation, so it is worth confirming with a lawyer or accountant.

When the simple formula does not apply

• Principal residence: the exemption reduces the gain using the formula A minus (A times B over C), where B is the number of years it was your principal residence and C is the number of years you owned it. The sale must still be reported on Schedule 3 and Form T2091.
• Depreciation claimed: if you claimed CCA on a rental, a negative undepreciated capital cost is recapture, taxed as ordinary income rather than a capital gain.
• Flipping: a gain on a housing unit in Canada held for less than 365 consecutive days is deemed business income, not a capital gain. Certain life events, such as death, a separation or a serious illness, are exceptions.
• Bought to resell: a property bought with the main intention of selling it is taxed on the gain as business income.
• Payments over time: a capital gains reserve can generally be claimed for up to four years, so the gain is included over five years. At least one-fifth of the gain is brought into income each year under the five-year rule.

The CRA looks at factors such as the type of property, how long it was owned, your history of selling similar properties, work done on the property, why you sold, and your intention when you bought it. If your situation touches any of these, get advice before filing.

What to do next

• Collect the original purchase agreement, closing statement and legal bill.
• List capital improvements with receipts, separately from repairs.
• Gather the selling documents: commission, legal fees, advertising and any fixing-up costs.
• Note how long you owned the property and why you are selling.
• Check whether any years were principal residence years, and whether you claimed CCA.
• Ask a lawyer or accountant to confirm the calculation and the inclusion rate for your year of sale.

Frequently asked questions