Do You Pay Capital Gains Tax Selling a House in Ontario?

Selling a house in Ontario often raises a tax question: will the profit be taxed? For many sellers the answer is no, but only if a few conditions are met and the sale is reported correctly. For others, such as owners of a cottage, a rental unit or a recently bought home, part or all of the gain can be taxable.

This article explains how the principal residence exemption works, how the sale is reported to the Canada Revenue Agency (CRA), and the main situations that change the result. It is general information, and your own facts matter, so a lawyer or accountant should confirm how it applies to you.

The principal residence exemption in plain words

A capital gain is the profit when you sell property for more than it cost you. The principal residence exemption can remove the tax on that profit. If the home was solely your principal residence for every year you owned it, no tax is payable on the gain.

The word "solely" matters. If the home was your main home for only some of the years you owned it, or if part of it earned income, only part of the gain may be sheltered. The rest of this article covers those cases.

You still have to report the sale

Many sellers assume that no tax means no paperwork. That is not how it works. You must still report the sale and designate the home on Schedule 3 and Form T2091(IND). The CRA allows the exemption only if the designation is reported on your return.

Forgetting to report is the most common avoidable mistake. Keep your purchase and sale documents, your lawyer's closing statements and records of major improvements so the numbers on your return are easy to support.

When the exemption is limited or does not apply

Several situations change the result. Check whether any of these describe you:

• Families: for 1982 and later years, a family unit (generally you, your spouse or common-law partner, and minor children) can designate only one home as its principal residence for each year.
• Cottages and second properties: a cottage or other property that was not designated as your principal residence is not exempt, and the gain must be reported as a capital gain.
• Rental or business use: if part of the home was used to earn income, the price and cost are split between the personal and income-producing parts, and the gain on the income-producing part is reported on line 13800 of Schedule 3.
• Large lots: land included with your principal residence is usually limited to half a hectare (1.24 acres), unless you can show more land is needed to use and enjoy the home.

If you own both a house and a cottage, you generally cannot shelter both for the same year. Which one to designate, and for which years, is worth working out with an accountant before you sell either property.

Homes sold within a year: the flipping rule

For sales on or after January 1, 2023, a home owned for less than 365 consecutive days is a flipped property. The profit is treated as business income, the principal residence exemption and the capital gains inclusion rate do not apply, and any loss is deemed nil.

There are exceptions for life events. The flipping rule does not apply if the sale results from any of these:

• the death of you or a related person
• a related person joining your household
• marriage or common-law breakdown with at least 90 days of separation
• a threat to your personal safety
• serious illness or disability
• involuntary job loss
• an eligible relocation
• insolvency
• destruction or expropriation of the property

If your sale falls within a year and one of these applies, keep documents that show it.

What to do next

• Write down the dates you bought and sold, and confirm whether you owned the home for 365 days or more.
• List every property your family unit owned during those years, including any cottage.
• Note any part of the home used for rent or business.
• Gather the purchase and sale statements and records of improvements.
• Ask an accountant how to designate the home on Schedule 3 and Form T2091(IND), and ask your lawyer about any sale-related paperwork.

If your situation involves a separation, an inherited property or a rental portion, get advice before you list the home rather than after it closes.

Frequently asked questions