Capital Gains Tax on Selling Property in Ontario Explained

If you are selling an Ontario property that has never been your principal residence, such as a rental unit, a second property or an investment condo, the sale can create a tax bill. The tax is not on the full sale price. It is on the gain, and only a portion of that gain is taxed.

This article walks through how the gain is worked out, how the inclusion rate applies, and where the principal residence exemption can reduce or remove the tax. It is general information, and the right answer for your sale depends on your facts.

How the capital gain is calculated

A capital gain is the proceeds of disposition minus the property's adjusted cost base (ACB) and any outlays and expenses of selling it. In plain words, it is what you sold for, less what the property cost you, less the costs of making the sale.

You report capital gains and losses on Schedule 3, and the taxable capital gain goes on line 12700.

• Proceeds of disposition: the price you sell for.
• Adjusted cost base (ACB): the property's cost base, which is subtracted from the proceeds when you work out the gain.
• Outlays and expenses of selling: costs that come directly from the sale.

If the property was bought or sold in a foreign currency, convert the proceeds at the exchange rate in effect at the time of the sale, the cost base at the rate on the purchase date, and expenses at the rate when they were incurred.

The inclusion rate: how much of the gain is taxed

The capital gains inclusion rate for 2025 is 50%, so half of a capital gain is taxable. In practice, you work out your gain first, then take half of it as the taxable capital gain at that rate. How much tax that taxable amount ends up costing you depends on your other income and your situation, so it is worth confirming with an accountant.

Inclusion rates are set for each tax year. If you are selling in a later year, confirm the rate in the CRA's current capital gains guide before you estimate your tax.

When the principal residence exemption applies

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. A property can qualify for a year only if you designate it as your principal residence for that year, among other conditions.

If it 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 CRA's example is $50,000 × (8 ÷ 10) = $40,000 exempt.

Two situations are worth flagging. First, if you move out of your home and rent it, you are treated as having sold it at fair market value and bought it back at the same amount, unless you make a specific election. Second, a housing unit in Canada that is not already inventory and that you owned for less than 365 consecutive days before selling it is a flipped property for sales on or after January 1, 2023. The profit is deemed business income and the principal residence exemption is not available. There are exceptions for certain life events and for marriage or common-law breakdown.

Rental properties: depreciation and recapture

If you claimed capital cost allowance (CCA) on a rental building, selling it can trigger more than a capital gain. Recapture of CCA arises if the proceeds take the class's undepreciated capital cost below zero, and it is reported on Form T776 (line 9947). If the property sells for more than its cost, you may have both a capital gain and recapture.

Land is not depreciable property, and rental buildings are generally Class 1 (4%). If a balance is left in the class after the last property in it is sold, you can usually deduct that terminal loss from rental income, but you cannot have a capital loss on depreciable property.

If you used only part of your home to earn income, the selling price and ACB are split between the two uses on a reasonable basis, such as square metres or number of rooms, and only the gain on the income-producing part is reported on line 13800 of Schedule 3. The CRA generally keeps full principal residence treatment where the rental use is ancillary, there is no structural change and no CCA is claimed.

What to do next

• Find your purchase documents and records of improvements and selling costs.
• List every year you owned the property and whether it was ever your principal residence.
• Note any years it was rented, and whether you claimed CCA.
• Check how long you owned it, in case the flipping rule could apply.
• Speak with a lawyer or accountant before you sign, since the sale terms and timing can affect your tax.

Frequently asked questions