Capital Gains Inclusion Rate on Ontario Real Estate Sales

If you are selling real estate in Ontario, you may have read headlines about the taxable share of capital gains going up. It is reasonable to ask which number actually applies to your sale.

This article explains what the inclusion rate is, what it is for 2025, what happened to the proposed increase, and how the rate fits with the principal residence exemption and rental property rules.

What the inclusion rate means

The inclusion rate is the portion of a capital gain that is added to your income and taxed. The rest of the gain is not taxed. A capital gain itself is the proceeds of disposition minus the property's adjusted cost base and the outlays and expenses of selling it.

The taxable capital gain is reported on line 12700, with the gain or loss itself reported on Schedule 3. The tax you pay on it then depends on your overall income for the year.

The current rate and the proposed increase

The CRA's capital gains guide gives the inclusion rate for 2025 as 50%, so half of a capital gain is taxable. In practice, that means you work out the gain by subtracting the adjusted cost base and your selling costs from the proceeds, and half of that result is the taxable capital gain.

Headlines have discussed a higher rate, but the CRA's capital gains guide gives 50% for 2025, so that is the rate to use for a 2025 sale. For a sale in 2026 or later, check the CRA's capital gains guide for that tax year, because rates are set year by year and a lawyer or accountant can confirm the current position.

When the rate does not matter much

If the property was solely your principal residence for every year you owned it, you usually pay no tax on the gain because of the principal residence exemption. In that case the inclusion rate has little practical effect, though you still report the sale and designation on Schedule 3 and complete Form T2091(IND).

If the home was not your principal residence for every year you owned it, only part of the gain is exempt. The exempt part is the gain × (designated years + 1) ÷ years owned. The inclusion rate then applies to the part of the gain that is not exempt.

• For 1982 and later years, a family can designate only one home as its principal residence for each year, but a spouse or common-law partner who lived apart from you throughout the year under a judicial separation or a written separation agreement is not part of your family for this limit.
• Years in which you were not resident in Canada do not count as designated years, but they still count as years owned.
• The 'plus 1' rule lets both the home you sold and the home you bought count in the year you change homes, provided you were resident in Canada in the year you buy the new one.

Rental and investment properties

For a rental or investment property, how much of the gain is taxable depends on how the property was used, so it is worth confirming with a lawyer or accountant. Capital cost allowance adds a second layer. When you sell, recapture arises if the proceeds take the class's undepreciated capital cost below zero, and if the property sells for more than its cost you may have both a capital gain and recapture.

There is a related point on losses. If a balance is left in the class after the last property is sold, you can usually deduct a terminal loss from rental income, but you cannot have a capital loss on depreciable property.

A housing unit in Canada owned for less than 365 consecutive days before it is sold can be a flipped property, and the profit is then deemed business income with no principal residence exemption available. The rule does not apply if the sale is due to certain life events, such as a death, a serious illness, an involuntary job loss or an eligible relocation, or to the breakdown of a marriage or common-law partnership where you have lived separate and apart for at least 90 days before the sale. That is separate from the inclusion rate.

What to do next

• Confirm the date of sale and the tax year it falls in.
• Check the CRA capital gains guide for that year to confirm the inclusion rate.
• Work out whether any part of the gain is covered by the principal residence exemption.
• Gather your cost records and selling costs before you calculate the gain.
• Ask a lawyer or accountant if the sale involves rental use, a non-resident period, or a property owned less than a year.

Frequently asked questions