Tax on Selling Foreign Real Estate as an Ontario Resident

Selling a house, cottage or piece of land abroad can leave an Ontario resident with two tax systems to deal with. Canada taxes residents on their gains, and the other country may tax the sale as well.

This article walks through how the gain is worked out, why exchange rates matter, and how a foreign tax credit may reduce double taxation. Details vary with the property and the country, so use this as a map and not a final answer.

How the 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. Selling costs can therefore reduce your gain.

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 your sale year.

Converting foreign currency to Canadian dollars

When property is bought or sold in foreign currency, each part of the calculation is converted separately:

• Convert the proceeds at the exchange rate in effect at the time of the sale.
• Convert the cost base at the rate on the purchase date.
• Convert each expense at the rate when it was incurred.

Because the rates differ, you can have a gain in Canadian dollars even if the price in the foreign currency barely moved, or the reverse. Keep the closing statements, purchase records and receipts for both dates.

Can the principal residence exemption apply?

If a property was solely your principal residence for every year you owned it, you usually pay no tax on the gain. A principal residence can be a house, cottage, condominium, apartment, trailer, mobile home or houseboat. For a year to count, you must designate it, and a family can designate only one home per year for 1982 and later years.

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. Years when you were not resident in Canada do not count as designated years, but they still count as years owned.

A foreign vacation home that sits beside a Canadian home is often a case where the one-home-per-family limit matters. Which home to designate for which years can be a real decision, so it is worth getting advice before you file.

Foreign tax and the foreign tax credit

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, and 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.

Where U.S. tax was paid, paper filers are asked to attach a W-2 slip, a U.S. 1040 return and a U.S. tax account transcript, and electronic filers should keep them in case the CRA asks. For U.S. real property, the Canada–U.S. Tax Convention says gains from selling it 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.

Other points that can change the result

• If the property was rented and you claimed capital cost allowance, a sale above the class's remaining balance can create recapture as well as a capital gain.
• If the property was a rental, a balance left after the last property in the class is sold may be a terminal loss, and you cannot have a capital loss on depreciable property.
• If the foreign property cost more than $100,000 and is not personal-use property, Form T1135 may also be required.

What to do next

• Gather the purchase and sale statements and the dates of each.
• Find the exchange rates for the purchase date, the sale date and each expense date.
• Add up your selling costs, such as commissions and legal fees.
• Collect proof of any foreign tax paid on the sale.
• Confirm with an accountant or lawyer which years, if any, to designate as a principal residence, and whether the foreign country's rules add another filing.

Frequently asked questions