Property Tax Arrears and Tax Sales in Ontario: What Happens

Falling behind on property tax is stressful, and it is easy to put off opening the mail. Unpaid property tax tends to become harder to manage the longer it is left, so it helps to understand your options early.

This article explains in plain terms how arrears can lead toward a tax sale, what people mean by redeeming a property, and the practical steps that can slow or stop the process. The exact steps, dates and amounts depend on your municipality and your notices, so a lawyer can confirm your own situation.

What property tax arrears are

Arrears are property taxes that were due and have not been paid. How much extra you owe on top of the original bill, and when it is added, depends on your municipality, so check your notices and confirm the details with a lawyer. The longer the balance sits, the harder it can be to catch up.

How a municipality can act on arrears, and how a mortgage lender may respond when taxes go unpaid, depends on your situation and your mortgage terms. It is worth confirming with a lawyer.

How a tax sale generally unfolds

How a municipality collects overdue property tax, including the notices it sends and the timelines involved, depends on your municipality and your situation. Your own notices will show the dates and amounts that apply to you, and a lawyer can confirm the steps.

• Reminder and overdue notices as the balance remains unpaid.
• Formal notices that the municipality is moving toward collecting the arrears through the property.
• Any final deadline shown on your notices, which is the date to take most seriously.
• If nothing is paid, the property itself may eventually be at risk, and how that works depends on your municipality and your notices.

Because the dates in your notices matter, it is sensible to open every envelope from the tax office promptly and treat it as urgent, even if the amount looks manageable.

Redemption and ways to stop the process

People often talk about redeeming a property, meaning clearing what is owed so the property is no longer at risk. Whether and until when that is possible depends on where you are in the process, which is why the dates on your notices matter so much.

People in this position commonly try the following, and a lawyer can help you choose among them:

• Contact the municipal tax office early and ask for a current statement of what is owed.
• Ask whether a payment arrangement is available. Whether one is offered depends on your municipality and your situation.
• Talk to your mortgage lender, who may be able to pay the taxes and add them to your mortgage, depending on your mortgage terms.
• Ask family or others about a short-term loan to clear the balance.
• Get legal advice quickly if you have received a final notice.

Selling the home instead of waiting

Some owners choose to sell on their own terms rather than risk a tax sale. A regular sale lets you pay the arrears from the proceeds and keep what is left. It also usually means a better price than a forced sale, though that depends on the market and your timing.

There is also a tax side to selling. You report the sale and the principal residence designation on Schedule 3 and complete Form T2091(IND). If the property was solely your principal residence for every year you owned it, you usually pay no tax on the gain. If it was not, only part of the gain is exempt, calculated as the gain multiplied by designated years plus one, divided by years owned.

One exception matters if you sell quickly. Under the residential property flipping rule, a housing unit in Canada owned for less than 365 consecutive days before it is sold is a flipped property, the profit is deemed to be business income, and the principal residence exemption is not available. A loss on a flipped property is deemed to be nil. The rule does not apply if the sale is due to, or made in anticipation of, certain life events, such as a death, a serious illness or disability, involuntary job loss, insolvency or a threat to personal safety. It also does not apply if the sale is due to the breakdown of your marriage or common-law partnership and you have lived separate and apart for at least 90 days before the sale.

A capital gain is the sale proceeds minus the adjusted cost base and the outlays and expenses of selling. For 2025, half of a capital gain is taxable. If part of the home was used to earn income, the selling price and adjusted cost base are split between the two uses on a reasonable basis, such as square metres or number of rooms. However, the CRA generally keeps full principal residence treatment where the income-producing use is ancillary to the home's main use as a residence, there is no structural change, and no CCA is claimed. An accountant can confirm how this applies to you.

What to do next

Start with the paperwork, then make contact. Doing this before the final stage gives you the most options.

• Gather every tax bill, arrears notice and letter from the municipality, and note the dates.
• Request an up-to-date statement of the amount owed.
• Check your mortgage statements and talk to your lender about taxes.
• List your income, savings and any assets you could use to clear the balance.
• Speak to a lawyer promptly if a notice mentions a sale or a deadline.

Frequently asked questions