Selling Foreign Property as an Ontario Resident: Tax Rules

Ontario residents are taxed in Canada on their income and gains, and that can include a home, cottage or lot sold in another country. The other country may tax the sale too, which is why the credit rules matter.

This article walks through how the gain is worked out, how currency conversion affects it, and how foreign tax credits fit in. The details depend on the country and your facts, so confirm your plan with an accountant or lawyer before you sell.

How the gain is calculated and reported

A capital gain is the proceeds of disposition minus the property's adjusted cost base (ACB) and any outlays and expenses of selling it. You report capital gains and losses on Schedule 3, and the taxable capital gain goes on line 12700.

The capital gains inclusion rate for 2025 is 50%, so half of a capital gain is taxable. Check the current year's CRA guide for the rate that applies to a later sale.

Converting foreign currency

Your return is in Canadian dollars, so each number must be converted. Because the exchange rate moves, a property can show a Canadian-dollar gain or loss that differs from the local-currency result.

Keep the closing statements, purchase documents and receipts for renovations and selling costs, so each figure can be converted at the right date.

Is the principal residence exemption in play?

If a 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. To qualify for a year, the property must be a housing unit, you must own it alone or jointly, you or certain family members must have lived in it at some time during the year, and you must designate it. For 1982 and later years, a family can designate only one home as its principal residence for each year. A spouse or common-law partner is not part of your family unit for that limit if, throughout the year, they lived apart from you and were separated under a judicial separation or a written separation agreement.

When you sell your principal residence, you report the sale and the 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, using the formula gain × (designated years + 1) ÷ years owned. Years when you were not resident in Canada do not count as designated years, but they still count as years owned. A foreign cottage or condo that you also rented out raises extra questions, so confirm how these rules apply to it.

Foreign tax credits

If you were resident in Canada at any time in the year and paid foreign tax on income you reported, you can claim a federal foreign tax credit on line 40500 using Form T2209. Use Form T2036 for the provincial credit. For each country, the federal credit is generally the lesser of the foreign income tax you actually paid and the Canadian tax otherwise payable on your net income from that country.

Under the Canada–U.S. Tax Convention, gains from selling real property in the U.S. (Article XIII) may be taxed in the U.S., and Canada gives a deduction from Canadian tax for U.S. income tax paid on U.S.-source income (Article XXIV). U.S. filing duties and any withholding on a sale are U.S. rules, so get U.S. tax advice for those.

Where U.S. tax was paid, the CRA asks paper filers to attach a W-2 slip, a U.S. 1040 return and a U.S. tax account transcript, and electronic filers should keep these in case the CRA asks for them.

Rental use and ongoing foreign reporting

• If you rented the property, recapture of CCA arises if the proceeds take the class's undepreciated capital cost below zero, and it is reported on Form T776.
• If a property sells for more than its cost, you may have both a capital gain and recapture.
• A terminal loss can usually be deducted from rental income in the year of sale, but you cannot have a capital loss on depreciable property.
• If the property was specified foreign property costing more than $100,000, Form T1135 may have applied for the years you held it.

The CRA's reassessment period is extended by three years if you failed to report income from specified foreign property and Form T1135 was not filed, was filed late, or was filed inaccurately.

What to do next

• Gather the purchase documents, closing statements and receipts for improvements and selling costs.
• Note the exchange rate for the purchase date, each expense and the sale date.
• Confirm what tax the other country will charge and keep the filings and proof of payment.
• Decide whether the property was a principal residence, a rental or both for each year you owned it.
• Ask an accountant or lawyer to review your credit claim before you file Schedule 3.

Frequently asked questions