Do you pay tax when you sell your home in Canada?

If the home is your principal residence for every year you owned it, the sale is fully tax-free under the Principal Residence Exemption (PRE). You must report the sale on your tax return (Schedule 3 and Form T2091). If the property was partially rented, used for business, or is an investment property, part or all of the gain may be taxable as a capital gain.

How much capital gains tax do you pay on selling a property in Canada?

Capital gains are included in your income at 50% (for the first $250,000 of gains in 2026) and 66.67% for gains above $250,000. So a $200,000 gain on an investment property means $100,000 is added to your taxable income. At a 40% marginal rate, you would pay approximately $40,000 in tax. The effective capital gains tax rate ranges from ~12% to ~27% depending on your income.

Do I need to report the sale of my principal residence to CRA?

Yes. Since 2016, you must report every sale of a principal residence on your tax return, even if the gain is fully exempt. Use Schedule 3 (Capital Gains) and Form T2091 (Designation of a Property as a Principal Residence). Failure to report can result in the PRE being denied and penalties.

Tax Implications of Selling a Home in Canada in 2026

Principal Residence Exemption (PRE)

Rule	Details
What qualifies	A housing unit you “ordinarily inhabited” during the year
Who can claim	Canadian residents (one per family unit per year)
Full exemption	If designated as principal residence for every year of ownership
Partial exemption	If designated for some years only (formula applies)
Reporting required	Yes — Schedule 3 + Form T2091 on tax return
Land included	Up to 0.5 hectares (1.24 acres); excess land taxable
“+1 rule”	Can designate for years owned +1 (helps during overlap)

PRE Formula (Partial Exemption)

Exempt portion = (1 + years designated) ÷ years owned × capital gain

Example: Own a home for 10 years, designate it as principal residence for 7 years, gain of $200,000:

Exempt = (1 + 7) ÷ 10 × $200,000 = $160,000 exempt
Taxable capital gain = $40,000 × 50% = $20,000 included in income

Tax on Different Property Sales

Property Type	Tax Treatment	Reporting
Principal residence (full)	100% tax-free (PRE)	Schedule 3 + T2091
Principal residence (partial years)	Partially exempt (formula)	Schedule 3 + T2091
Investment/rental property	Full capital gain taxable	Schedule 3
Cottage (designated as PR)	Tax-free for designated years	Schedule 3 + T2091
Vacant land	Full capital gain or business income	Schedule 3 or T2125
Flipped property	100% business income (no 50% inclusion)	T2125 (business income)
Pre-construction assignment	Capital gain or business income	Schedule 3 or T2125

Capital Gains Tax Rates (2026)

Capital Gain Amount	Inclusion Rate	Tax on $100K Gain (40% marginal rate)
First $250,000	50%	$20,000
Above $250,000	66.67%	$26,668 per additional $100K

Effective Capital Gains Tax by Income Level (Ontario)

Marginal Rate	Effective Rate (50% inclusion)	Effective Rate (66.67% inclusion)
20.05% (lowest)	10.0%	13.4%
29.65%	14.8%	19.8%
33.89%	16.9%	22.6%
43.41%	21.7%	28.9%
53.53% (highest)	26.8%	35.7%

Selling an Investment Property

Step	Details
1. Calculate adjusted cost base (ACB)	Purchase price + legal fees + improvements − CCA claimed
2. Calculate capital gain	Sale price − selling costs − ACB
3. Report on Schedule 3	Include in tax return for year of sale
4. CCA recapture	If CCA was claimed, recapture is fully taxable as income
5. Pay tax	50%/66.67% inclusion × your marginal rate

Investment Property Tax Example

Item	Amount
Purchase price (2018)	$400,000
Improvements	$30,000
Legal/closing costs (purchase)	$5,000
Adjusted cost base	$435,000
Sale price (2026)	$600,000
Real estate commission (5%)	−$30,000
Legal costs (sale)	−$2,000
Net proceeds	$568,000
Capital gain	$133,000
Taxable portion (50%)	$66,500
Tax at 40% marginal rate	~$26,600

Partial Rental Use / Home Office

Situation	Tax Treatment	Notes
Rent out part of home (basement suite)	Rental portion may lose PRE	Can preserve PRE if no CCA claimed and no structural changes
Home office (employee)	No impact on PRE	PRE preserved
Home office (self-employed, no CCA)	No impact on PRE	PRE preserved
Home office (self-employed, CCA claimed)	CCA portion loses PRE	Avoid claiming CCA on home
Convert part to rental	Change-in-use rules apply	Deemed disposition on converted portion
Convert entire home to rental	Deemed disposition at FMV	Can elect to defer for up to 4 years

Anti-Flipping Rule (2023+)

Rule	Details
What it is	Homes owned less than 365 days taxed as business income (no 50% inclusion)
Effective	January 1, 2023 onwards
Impact	100% of profit taxed as business income at full marginal rate
Exceptions	Death, disability, divorce/separation, workplace relocation (40+ km), personal safety threat, involuntary disposition
How it works	If you sell within 365 days and no exception applies, the gain is business income

Reporting Requirements

Form	Purpose	When
Schedule 3	Report capital gains/losses	With annual T1 return
T2091	Designate principal residence	With return for year of sale
T1255	Elective return for deemed dispositions	When changing use
UHT return	Underused Housing Tax (non-residents, non-Canadians)	April 30 annually

GST/HST on new home sales

Sellers of newly constructed or substantially renovated residential properties must charge GST/HST on the sale price. This applies to builders and individuals who substantially renovated their own home:

Situation	GST/HST required?
Resale of existing home (not new/renovated)	No GST/HST
Sale of brand-new construction by builder	Yes — GST/HST on full purchase price
Substantial renovation (90%+ of interior removed)	Yes — GST/HST applies
Sale by individual of their own primary residence	No (individual is not a builder for their own home)
Pre-construction assignment by original buyer	May be taxable — CRA reviews case-by-case

Buyers of newly built homes may qualify for the GST/HST New Housing Rebate (up to $6,300 federal) to recover part of the GST paid if the purchase price is under $450,000.