What Is Capital Gains Tax on Real Estate in Canada?
When you sell a capital asset or an investment and the proceeds of the sale exceed the adjusted cost base (ACB) of the asset, you realize a capital gain. However if the proceeds are lesser in value than the adjusted cost base, it is a capital loss.
Capital losses are not taxable, and are only available for non-depreciable assets, such as land, shares or other investments. Capital gains on the other hand are added to taxable income at half (50%) of the amount of the gain.
What is Capital Property?
According to the Canada Revenue Agency, capital property refers to assets that can generate income or appreciate in value over time, such as buildings, land, cottages, shares, bonds, and mutual fund units. These assets are typically held for investment purposes or long-term use in a business rather than for resale.
When you dispose of a capital property, you may realize either a capital gain (if the sale price exceeds your adjusted cost base) or a capital loss (if it’s lower).
How are Capital Gains taxed in Canada?
The capital gain must be included in the annual income tax return and is taxed a percentage of that gain, which is referred to as the inclusion rate.
In Canada, the capital gains inclusion rate is currently 50%. This means that when a capital asset is sold for more than its purchase price, only 50% of the gain is subject to tax. The resulting taxable amount is taxed at the individual’s marginal tax rate, which depends on their total income and province of residence.
How is Capital Gains Tax calculated on real estate in Canada?
According to the CRA, in order to calculate the capital gains tax you need to know the following amounts:
- The proceeds of the disposition
The proceeds of the disposition are the amount you received after selling off your property
- Adjusted Cost Base (ACB)
The adjusted cost base is the amount you paid to purchase the capital property including any additional costs incurred during the ownership period for renovations, as well as any costs paid to acquire the property (i.e. legal fees)
- Outlays and expenses incurred to sell the property
These are the costs that you incurred to dispose of the property. These can include legal fees, selling commissions, surveyors’ fees, fixing-up fees, finders’ fees, brokers’ fees, advertising costs and transfer taxes.
As an example, assume you had a capital gain of $20,000. According to the inclusion rate, 50% or half of that is taxable which is $10,000. The tax rate would be determined according to the individual’s tax bracket along with the province of residence.
How to Avoid or Reduce Capital Gains Tax on Real Estate in Canada?
Though the inclusion rate is the same for everyone there are certain ways to lower the amount of tax on your capital gains.
- Timing the sale of investments and properties
Timing the sale of investments can be a powerful tax deferral tool. For instance, if your sale has generated a profit you might consider postponing the sale until after January 1st of the next year. This will in turn incur the capital gains tax that year and only have to pay by April 30th of the following year.
If you have a variable income, selling a capital asset during the year when your income is low may save you money. If you have capital assets where you incurred losses and some where you incurred profits, timing them together will help offset the loss against the profit and reduce your overall capital gains tax. You can also use the principal-residence exemption to reduce capital gains on residential property by showing it as your primary residence to avoid capital gains.
- Giving Away Assets
If you make charitable contributions on a regular basis or if you want to give money to a family member you can use donations or gifts to reduce your capital gains. For instance, if you want to donate $1,000, rather than paying them in cash and having triggered capital gains tax, you can donate stock valued at $1,000 but may have originally cost you less. This way you avoid triggering any capital gains tax.
- Capital Gains Tax vs Capital Loss: Key Differences
A capital loss is when you sell your non-depreciable property for less than the Adjusted Cost Base.
Gifts to your family members may trigger capital gains tax as CRA deems a gift taxable disposition of an asset. You can save money by gifting an asset that has generated a loss but you want to keep it due to sentimental value to the family. You can use this capital loss to adjust your other capital gains, while your family members will have the benefit of retaining the shares.
- Lifetime Capital Gains Exemption (LCGE)
Canadian residents who operate active businesses, farms or fishing properties and whose business is primarily Canadian may reduce their capital gains by the amount of the exemption when they sell these businesses or properties.
The lifetime capital gains exemption which is for small business corporation shares and for qualified fishing and farming properties is aimed at reducing this amount of tax.
To qualify for the Lifetime Capital Gains Exemption (LCGE), the company must be an active Canadian business, not mainly an investment or holding company. You or a related person must have owned the shares for at least 24 months, and the company must have used most of its assets to run its active business in Canada both at the time of sale and during those 24 months.
- Capital Gain Reserve
You can defer a capital gain on real estate in Canada. If you sold a real estate property in Canada but the payment will be received in installments over a period of time, this capital gain still has to be reported in your personal income tax return. The capital gain can be deferred upto five years using the Capital Gain Reserve. This will however only be beneficial if the future taxable income falls under lower tax brackets, resulting in a lower tax rate.
You can only defer the capital gain until you receive your payment in full, or up to five years if you are a Canadian resident. You need to submit Form T2017 in Schedule 3 of the Personal Tax Return.
Capital Gains Tax on Commercial Property in Canada
When you sell a commercial property, any profit is subject to capital gains tax, and you may also need to recapture depreciation previously claimed.
The gain is calculated by subtracting the property’s adjusted cost base and selling expenses from its sale price. Business-use properties may also qualify for certain deferral or exemption strategies under specific CRA rules, but these differ from residential property treatment.
Capital Gains Tax Rules in 2025: What Changed?
As of 2025, the capital gains inclusion rate remains 50%, meaning half your capital gains are taxable.
Additionally, the CRA now requires more accurate reporting for property sales and changes in use (for example, when a home switches from principal residence to rental), making professional tax guidance increasingly important.
Do you need help reducing your Canadian Capital Gains Tax on Real Estate?
When filing personal income tax returns, it is important to report a property sale accurately to avoid confusion and minimize potential costs. With the help of our team of professionals at SRJ Chartered Professional Accountants, we can help you minimize your capital gains tax and make sure you do not pay more than required. You can find a detail of services we provide for personal tax returns here.Feel free to schedule a consultation with one of our accountants to help with your personal tax needs. You can book one here.
FAQs
What can I deduct when calculating capital gains on property in Canada?
You can deduct the adjusted cost base (ACB) — what you paid for the property plus legal fees and capital improvements — and selling costs such as realtor commissions, legal fees, and advertising. These are subtracted from your selling price (proceeds of disposition) to determine your capital gain. You can also use capital losses from other investments to offset gains. Routine maintenance, mortgage interest, or insurance aren’t deductible.
How does timing the sale affect capital gains tax for property in Canada?
Selling property in a lower-income year can reduce how much tax you pay on the taxable half of your gain, as capital gains are taxed at your marginal rate. If you delay a sale to the next calendar year, payment of tax is deferred until the following filing season. Also note, properties held less than 12 months may fall under house-flipping rules, where profits are treated as business income and fully taxable
What is the inclusion rate for capital gains tax on property in Canada?
As of 2025, the capital gains inclusion rate is 50%, meaning only half your gain is taxable. The taxable portion of the gain is added to your income and taxed at your marginal rate, which varies by province and income level.
What qualifies as capital property for tax purposes in Canada?
Capital property includes real estate, land, shares, bonds, mutual fund units, and certain business assets held for long-term investment. It’s property that can generate income or appreciate in value, rather than items for resale. Depreciable property like rental buildings is still capital property but follows separate recapture rules when sold.
Do I pay capital gains tax when selling my primary residence in Canada?
Generally, no. The principal residence exemption lets you avoid tax on gains from your main home, provided it was your principal residence for every year owned. You must still report the sale on Schedule 3 and Form T2091. If the property was used partly as a rental or not designated as your principal home for all years, a partial gain may be taxable.