What do I have to do about tax after my home sells?

The principal residence exemption

Section 40(2)(b) of the Income Tax Act reduces the gain on a home by a formula based on the number of years it was your principal residence, and section 54 defines that as a housing unit you, your spouse or your child ordinarily inhabited in the year. A family unit may designate only one property for any year. The formula adds one year, which is what lets a family sell one home and buy another in the same year without losing a year.

Since the 2016 tax year the sale must be reported on Schedule 3 and Form T2091 even when the gain is fully exempt. Failing to report can cost the exemption and a late-filing penalty.

When the exemption does not cover everything

Part of the gain may be taxable if the home was rented out for some years, if you claimed depreciation on a home office, if you owned a second property such as a cottage and designated it for some of the years, or if the land exceeds half a hectare and the extra is not needed for the residence. The CRA's folio on principal residences explains each case.

As of September 2026 the federal flipping rule in section 12(12) of the Act treats the profit on a housing unit owned for fewer than 365 consecutive days as business income, with no exemption, unless the sale is due to a listed life event: death, a household addition, marriage breakdown after 90 days apart, illness or disability, a job relocation or loss, insolvency, or the home's destruction.

Non-residents and section 116

If you were not a resident of Canada for tax purposes when you sold, section 116 of the Act requires notice to the CRA and, until a certificate is issued, obliges the buyer to withhold a percentage of the price. In practice your lawyer holds that amount in trust and releases it when the certificate arrives, which can take months. Form T2062 starts the process.

Whether you count as a non-resident is a question of fact and of tax law, and a mistake is expensive for the buyer as well as for you. Tell your lawyer early if you live outside Canada or have recently left.

Claims after closing

A buyer who finds a problem after closing may claim that you knew of a hidden defect and stayed silent, hid it, or misrepresented the home. Whether that succeeds depends on what you knew, what you said and whether the defect was one an inspection could have found. Under the Limitations Act, 2002 a claim must generally be started within two years of the buyer discovering it.

Do not respond on your own. Send any letter to your lawyer, and keep your disclosure, the inspection report if you saw it, and every invoice and permit. The buyer's insurer or title insurer may also be involved.

Wrapping up

Confirm the discharge of your mortgage has been registered; we follow up, and you should keep the confirmation. Cancel your home insurance from the day after closing, not before. Close or transfer utilities and the rental contracts you paid out. Update your address with the CRA, ServiceOntario and your lender.

If the home is in a municipality with a vacant home tax, a declaration for the year of sale may still be required from you or from the buyer; check the municipality's rules for who files. File the closing package with your tax records: it establishes the sale price, the costs of sale and the date of disposition.