CostWhen you sell an investment or non-principal-residence property in Canada, 50% of your capital gain is added to your taxable income for that year and taxed at your marginal rate. Your principal residence is generally exempt entirely, under the principal residence exemption.
How the calculation actually works
Your capital gain is your sale price minus your adjusted cost base (roughly what you paid, plus qualifying capital improvements, plus selling costs like commission and legal fees). Under the current 50% inclusion rate, half of that gain is added to your taxable income for the year you sell, and taxed at your normal marginal rate — it isn't a separate, flat capital gains tax rate the way some other countries structure it.
A worked example
Investment property bought at $400,000, sold at $650,000
| Sale price | $650,000 |
| Adjusted cost base + selling costs | $438,000 |
| Capital gain | $212,000 |
| Taxable portion (50%) | $106,000 |
| Approximate tax owed (40% marginal rate) | $42,400 |
The taxable portion gets added on top of your other income for the year, which can push some of it into a higher tax bracket depending on your total income — worth planning around rather than discovering at tax time. See your own estimate on the capital gains calculator.
The principal residence exemption
If the property was your principal residence for the years you owned it, the gain for those years is generally exempt entirely under the principal residence exemption — this is what makes selling your own home typically tax-free in Canada, unlike an investment property. If a property was a rental for part of its ownership and your principal residence for the rest, the exemption applies proportionally, and a change in use partway through can itself trigger tax — see our explainer on what happens when you move into a rental or rent out your home.