Sell Ontario property that is not your principal residence and half the gain is taxed at your marginal rate. The proposed increase to two-thirds was cancelled on 21 March 2025, so the rate stays at 50%. The bigger risk is the CRA reclassifying your sale as business income, where all of it is taxable.
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From $563.87 taxes included
Start with proceeds of disposition. Subtract the adjusted cost base and the outlays and expenses of selling. The cost base is more than the purchase price: it includes land transfer tax, legal fees and title insurance on the purchase, and every capital improvement you made along the way. Selling costs include the real estate commission, legal fees on closing and any mortgage discharge penalty. Every receipt you kept lowers the tax; every one you lost raises it.
Half of the resulting gain — the taxable capital gain — goes into income for the year of disposition and is taxed at your combined federal and Ontario marginal rate. There is no separate provincial capital gains tax and no flat rate. The tax on a large gain is therefore often higher than people expect, because the gain itself pushes you into a higher bracket for the year.
Where part of the sale price is payable in a later year, a capital gains reserve can spread the gain over up to five years, with a minimum of one-fifth brought into income each year. Where you sell shares of a qualifying small business corporation or qualified farm or fishing property, the lifetime capital gains exemption — raised to $1.25 million and indexed from 2026 — may apply. It does not apply to a rental property or a cottage.
The distinction is worth double the tax. A capital gain is half-taxable; business income is fully taxable, and it does not qualify for the principal residence exemption or the lifetime capital gains exemption. The CRA decides on the badges of trade: your intention at purchase, how long you held it, how many similar transactions you have done, how the purchase was financed, what work you did to the property, and why you sold.
The residential property flipping rule turns part of this into a bright line. Residential property held for fewer than 365 consecutive days before sale is deemed to give rise to business income, with no principal residence exemption. Exceptions exist for genuine life events — a death, a relationship breakdown, serious illness or disability, the birth of a child, a qualifying work relocation, insolvency, an involuntary disposition. A change of heart about the market is not one of them.
Assignment sales of pre-construction condominiums are the other flashpoint. The CRA generally treats the profit on an assignment as fully taxable business income rather than a capital gain, and GST/HST applies to the assignment consideration. Ontario buyers who assigned a Toronto or Hamilton pre-construction contract and reported half the profit are being reassessed for the other half plus penalties.
Capital losses are the first tool. Allowable capital losses offset taxable capital gains in the year, can be carried back three years and carried forward indefinitely. Watch the superficial loss rule: buy back a substantially identical property within 30 days before or after the sale, and the loss is denied and added to the cost base instead.
Timing matters. The gain is realised on the closing date, so a December closing and a January closing land in different tax years and can be taxed at very different rates. Where the sale is to a related party or the buyer is paying over time, the reserve can spread it. Where a property has been converted from a home to a rental or back, the change-of-use elections can defer or reshape the gain.
What does not work: gifting or transferring property to a spouse or child to spread the gain, because a transfer to a non-arm's-length person is a deemed disposition at fair market value and the attribution rules push income back to you. Adding a child to title to avoid probate creates an immediate partial disposition and can lose part of your principal residence exemption. Both are common Ontario planning mistakes with expensive tax consequences.
No. Budget 2024 proposed raising it from one half to two thirds for corporations and most trusts, and on individual gains above $250,000 a year. The effective date was deferred to 1 January 2026, and on 21 March 2025 the federal government announced it would not proceed. The CRA reverted to administering the enacted one-half rate. The increase to the lifetime capital gains exemption to $1.25 million on qualified small business corporation shares and qualified farm and fishing property was kept, with indexation resuming in 2026.
Yes. A gift or a transfer for less than fair market value to a non-arm's-length person is treated as a disposition at fair market value, so you realise the full accrued gain even though no money changed hands. Your child's cost base is set at that same value only if the transaction is priced properly — sell it for a nominal sum and you can end up taxed on the full value while your child inherits a nominal cost base, taxing the same gain twice. Price any family transfer at fair market value and document the valuation.
You have 90 days from the date of the notice of reassessment to file a Notice of Objection, and that deadline is real — miss it and you are down to applying for an extension, which is available for a limited further period and is not guaranteed. An objection sends the file to CRA Appeals, which is independent of the auditor, and it usually stops collection action on the disputed amount for individuals. From there the next step is the Tax Court of Canada. Get advice before you respond to the audit proposal letter, not after the reassessment issues.
Ontario does not levy a separate capital gains tax — the taxable half is simply taxed at your combined federal and Ontario marginal rate. Other Ontario costs arrive at different points in the transaction: land transfer tax is paid by the buyer on acquisition, with a second municipal land transfer tax in Toronto, and HST can apply to new or substantially renovated housing and to assignments. On death, Ontario estate administration tax applies to the probated value, separate from the income tax on the deemed disposition.
Open your file tonight — a licensed Ontario lawyer will confirm everything with you by tomorrow.