Capital Gains Inclusion Rate on Property: What Applies Now

If you are selling an investment property, you have probably heard about changes to capital gains taxation. News about a higher inclusion rate caused confusion, and many sellers want to know what actually applies.

This article explains the current position in plain language, how the rate works for individuals and corporations, and the situations where a gain is not treated as a capital gain at all.

What the inclusion rate is

The inclusion rate is the portion of a capital gain that is added to your income and taxed. Paragraph 38(a) of the Income Tax Act sets the taxable capital gain at one-half of the capital gain. The CRA states that the capital gains inclusion rate for 2025 is 1/2, so half of a capital gain is generally taxable.

The same fraction applies to losses. Paragraph 38(b) sets the allowable capital loss at one-half of the capital loss.

What happened to the proposed increase

A proposal would have raised the rate above one-half. It was cancelled, and Budget 2025 confirmed the government would not proceed with the capital gains inclusion rate increase, including for corporations. Section 38 still sets one-half for all taxpayers.

So for an individual or a corporation selling investment real estate, the general rule is that half the capital gain is included. Because tax rules can be amended, confirm the rate for your year of sale before you file.

How the rate fits into the calculation

The inclusion rate applies after you have worked out the gain. The capital gain is proceeds of disposition minus the adjusted cost base and the outlays and expenses of the sale. The taxable portion is then one-half of that gain.

For rental property, land and building are reported separately on Schedule 3. Only the gain on the part used to produce income is reported on line 13800.

When the one-half rate may not apply

The inclusion rate only matters if the profit is a capital gain. The CRA says profit on the sale of a rental property is reported as a capital gain. A property bought with the main intention of selling it is taxed on the resulting gain as business income.

• Flipped property: a gain on a housing unit in Canada, or a right to acquire one, held for less than 365 consecutive days is deemed business income, not a capital gain.
• Exceptions exist for certain life events, including death, a serious illness or disability, an eligible relocation, or involuntary job loss.
• A business loss on a flipped property is deemed to be nil.
• Assignment sales, such as a pre-construction condo, must be reported as business income.

When the CRA looks at a real estate sale, it considers the type of property, how long you owned it, your history of selling similar properties, any work done, why you sold, and your intention when you bought. These are fact-based questions, so get advice if your sale was soon after purchase.

Capital losses and the principal residence

Only half of a capital loss is allowable. A loss on the deemed sale of your own home on a change in use cannot be claimed.

If the property was your principal residence, the exemption usually means no tax on the sale, except where it was bought mainly to sell for profit. You still must report the sale on Schedule 3 and Form T2091(IND), even if the home was your principal residence for every year.

What to do next

• Confirm the date you acquired the property and the date of sale, and count whether it was under 365 days.
• Work out your adjusted cost base and selling costs.
• Think about why you bought the property and keep records that show your intention.
• Check the current inclusion rate for the tax year of the sale.
• Ask an accountant or lawyer to review any sale that looks like a flip, an assignment, or a former home that became a rental.

Frequently asked questions