Capital Gains Tax on Selling Property in Canada (2026 Rules and Example)
Selling an investment property taxes half the gain at your marginal rate. A $450,000 rental sold for $700,000 nets a $201,500 gain with $44,000–$54,000 in tax.
When you sell property that is not your principal residence, half of the gain is added to your income for the year and taxed at your marginal rate. The gain is the sale price less selling costs, less what you paid plus the cost of capital improvements. A rental bought for $450,000, improved by $12,000, and sold for $700,000 with $36,500 of selling costs has a gain of $201,500; $100,750 is taxable, which at a 43% marginal rate is about $43,700 of tax. Your own home is exempt. The inclusion rate is 50%; the proposed increase to two-thirds was cancelled in 2025.
Figures come from the CostToClose capital gains calculator.
The calculation
| Step | Amount |
|---|---|
| Sale price | $700,000 |
| Less selling costs (commission $35,000, legal $1,500) | −$36,500 |
| Net proceeds | $663,500 |
| Less adjusted cost base: purchase $450,000 + capital improvements $12,000 (a new roof) | −$462,000 |
| Capital gain | $201,500 |
| Taxable capital gain (50%) | $100,750 |
| Tax at 43.41% marginal rate (Ontario, $150K–$220K income) | $43,736 |
| Tax at 53.53% (Ontario top rate) | $53,931 |
Produced by the CostToClose calculator, 14 September 2026. Land transfer tax and legal fees paid when you bought are also part of the adjusted cost base; add them.
Because the taxable half is stacked on top of your other income in the sale year, a large gain can push part of it into a higher bracket. Selling in a year with lower income, or splitting ownership with a spouse who is in a lower bracket, changes the tax.
What counts as adjusted cost base
Purchase price, land transfer tax, legal fees on purchase, and capital improvements: things that add to the value or extend the life of the property (roof, windows, an addition, a full kitchen). Repairs and maintenance (painting, fixing a furnace) are not capital; on a rental they were deductible as expenses in the year you paid them. Keep receipts; CRA can ask for them years later.
Recapture on rentals
If you claimed capital cost allowance (depreciation) on a rental building, the CCA you claimed is "recaptured" on sale and taxed as ordinary income at 100%, separately from the capital gain. Many owners never claim CCA on a property they may sell for exactly this reason.
Principal residence exemption
The home you ordinarily live in is exempt from capital gains for the years you designate it as your principal residence, one property per family per year. You must still report the sale on your return (Schedule 3 and Form T2091) even when the tax is zero; failing to report can cost the exemption. If a property was a rental for some years and your home for others, the exemption covers the home years plus one. See Principal residence exemption: when you lose it.
Flipped property rule
Since 2023, profit on a residential property held less than 365 days is taxed as business income: 100% inclusion, no principal residence exemption. The only way around it is a life-event exception (death, separation, job relocation, disability, insolvency, and a few others).
What changes the number
- Your other income in the sale year. Every dollar of taxable gain is taxed at the rate it lands in.
- Documentation of improvements. $12,000 of receipts saved about $2,600 of tax in the example.
- Joint ownership. Each owner reports their share; two spouses in lower brackets pay less combined.
- Capital losses from other investments, this year or carried forward, offset taxable gains.
- Non-residents face a 25% withholding on the gross proceeds until a clearance certificate is obtained.
Frequently asked questions
How much is capital gains tax on a rental property in Canada?
Half the gain is taxed at your marginal rate. On a $200,000 gain that is roughly $40,000 to $54,000 for someone in the upper brackets, less for lower incomes.
Is the capital gains inclusion rate 50% or 66.7%?
50%. The proposed increase to two-thirds for gains over $250,000 was cancelled in March 2025 and never took effect.
Do I pay capital gains tax when I sell my house?
No, if it was your principal residence for every year you owned it. You must still report the sale on your tax return.
Can I deduct real estate commission from capital gains?
Yes. Commission, legal fees on sale and other selling costs reduce the proceeds and therefore the gain.
What if I sell a property within a year of buying it?
The profit is treated as business income and fully taxed, with no principal residence exemption, unless a listed life-event exception applies.
Sources
- Canada Revenue Agency, Capital gains — real estate and depreciable property (Line 12700) — checked 14 Sept 2026
- Canada Revenue Agency, Principal residence and other real estate; Form T2091 — checked 14 Sept 2026
- Canada Revenue Agency, Residential property flipping rule — checked 14 Sept 2026
- Department of Finance Canada, cancellation of the capital gains inclusion rate increase (March 2025) — checked 14 Sept 2026
- Canada Revenue Agency, combined federal and Ontario marginal rates 2026 — checked 14 Sept 2026
This is general information for Canadian home buyers and sellers, checked against the sources listed above on the date shown. It does not constitute legal, tax, or mortgage advice. Because rules and rates change, confirm current figures with your lawyer or notary, your lender, or the government office that administers the tax before you rely on them.