In today’s economy, real estate is one of the best ways to generate wealth and fund your retirement. But while asset appreciation has been enormous – according to the Canadian Real Estate Association (CREA), the average annual rate of return has been around 7 to 10 percent for residential properties and 8 to 12 percent for commercial properties over the past few decades – before purchasing an investment property, residential sellers should keep taxes top of mind and be asking themselves this crucial question: How much tax do you pay when you sell a house in Canada?
Are You Taxed on Selling Your Home in Canada?
Whether you are taxed when selling your house in Canada depends on the nature of the property and its usage. If the property is your principal residence for all the years you’ve owned it, you remain exempt from paying taxes on the sale due to the Principal Residence Exemption. However, if the property is a second home, rental property, or business asset, you may be subject to capital gains tax.
For 2025, changes to the tax structure may impact individuals with significant capital gains. If your net capital gains exceed $250,000 in a year, 66.67 percent of the profit is now taxable—an increase from the previous 50 percent rate. This means a larger portion of your profit could be included in your taxable income, especially for high-value properties or investment assets.
How Much Tax Do You Pay When You Sell a House in Canada?
One of the things that makes the Canadian real estate market so attractive to residential buyers is that you do not pay any taxes on the sale of a principal residence due to what’s known as the principal residence exemption for Canadian residents. As such, any profit you garner from selling your primary residence will not be taxed.
Because of the substantial growth that Canada’s housing sector experienced in the past two decades, many homeowners who bought and held their residential properties and sold recently will have enjoyed immense tax-free gains.
Of course, there are a few exceptions. Still, the fact that there is no capital gains tax when you are selling your primary home – be it a detached house in rural British Columbia or a condominium in the heart of Toronto – is appealing to many Canadians.
Taxes on a Real Estate Sale
How much tax do you pay when you sell a house in Canada? Here are three taxes that may be levied on the sale of your property:
GST/HST
Are you selling a newly constructed or significantly renovated home? If so, you might be required to charge GST or HST on the sale. At the same time, if the property was your primary residence, you might be able to apply for a rebate of some or all the GST/HST paid. In addition, the size of the rebate will also depend on the sale price of your home and how much GST or HST was paid.
Ultimately, to determine if you are qualified, you must file a GST/HST New Housing Rebate Application with the Canada Revenue Agency (CRA) within two years of the sale date.
You should also know that even if the home you sell is your primary residence, there will be some GST/HST that needs to be paid.
Capital Gains Tax
Do You Pay Capital Gains Tax When Selling Your Home in Canada?
In the last few years, there has been discussion about introducing a capital gains tax on property values of at least $1 million to raise revenues for cash-strapped governments. The Canada Mortgage and Housing Corporation (CMHC) – Canada’s national housing agency, responsible for providing housing finance solutions for buyers and ensuring lenders have reliable access to mortgage funding – considered a 0.2 percent penalty on homes valued between $1 million and $1.5 million and up to 1 percent on residential properties valued above $2 million, back in 2022.
While research estimated that approximately 9 percent of Canadian homes would be affected (mainly in British Columbia and Ontario) and that it would generate as much as $5.83 billion that the federal government could apply to new housing starts, the idea has not resulted in new public policymaking at any level of government, thus far.
For now, while you do NOT need to pay a capital gains tax on the sale of your principal residence, the rules are different when it comes to the sale of a vacation home or a rental property. Secondary properties, such as cottages or rental properties, are subject to capital gains tax. You can still apply for a partial capital gains exemption, but the calculations are a bit more intricate.
For “house flippers,” the likelihood of paying capital gains tax is high unless you live in the property for at least a year. Property flipping involves purchasing real estate and holding it for a short period of time with the intention of reselling it for profit. Canada’s Residential Flipped Property Rule was enacted at the end of 2022 in response to the government’s concern that many individuals who were engaged in property flipping were inappropriately reporting the profits as a capital gain and, in some cases, also claiming the principal residence exemption.
Under the Flipped Property Rule, a gain from the disposition of a residential property in Canada (after January 1, 2023) that was owned for less than 365 days is considered fully taxable as business income. The purchase of a pre-construction condo also falls under this rule, meaning that where the sale of the pre-purchase right occurs within 365 days, the gain on the disposition would also be considered business income.
Gains from such dispositions are not eligible for the capital gains inclusion rate or the principal residence exemption.
Various expenses incurred to earn your profit would be tax deductible, but any resulting loss would be denied, and CANNOT be claimed as a business loss.
If the sale of the property is due to certain life events such as a death, disability, marital breakdown, the addition of family members, work relocation, involuntary termination of employment, insolvency, destruction or expropriation of the property, an exception to the rule may be granted.
However, the CRA has also increased compliance efforts in areas where speculative activity has increased, so if you’ve purchased and disposed of residential property in Canada, you should be prepared to support your tax filing.
Remember to maintain documentation no matter what your claim, even if you’ve held the property for over 365 days before selling it.
During an audit, the CRA may request the following:
- Agreements, such as the offer to purchase, contract of purchase and deed of sale
- The mortgage contract
- Any property appraisals
- Subdivision plans where a large property is subdivided into smaller lots
- Zoning applications
- Listing agreements from applicable real estate agencies
- Any statement of adjustments prepared by a lawyer
Property Tax
Generally, property taxes are paid on a pro-rated basis. This means that you will be required to pay a part of the property taxes for the year of the sale. The amount you owe will depend on the specific closing date of the transaction. For example, if you sell your property halfway through the year, you would typically be responsible for covering the property taxes for the first six months, while the buyer would cover the remainder.
Property tax adjustments are typically handled during the closing process and are calculated by your real estate lawyer or notary. The statement of adjustments prepared at closing will outline how much of the property tax is attributed to each party, ensuring that taxes are equitably shared based on the exact number of days each party owned the property during the tax year.
If the seller has already paid property taxes for the full year, the buyer will be required to reimburse their share of taxes for the period after the closing date. Conversely, if taxes for the year have not yet been paid, the seller may need to settle their portion before transferring ownership.
Taxes for Non-Canadian Resident Owners Selling a Home
The tax implications are slightly different for non-Canadian resident owners or individuals who are Canadian citizens but do not reside in the country.
There are several aspects that non-resident owners must be aware of when selling a property:
- You must apply for a Clearance Certificate.
- A non-resident withholding tax of 25 percent of the home’s gross sales price will be applied until you complete and pay your income tax return (this jumps to 66.67 percent if it is a rental property)
- You’ll need to file a Section 216 return to confirm that you have reported rental income and paid taxes (this is if the property has been rented out).
- You’ll need to submit a Canadian tax return for the year of the sale.
Assistance When Selling a Home is Important
The taxes you’re responsible for are in addition to the myriad of other real estate-related fees you will inevitably have to pay, such as mortgage discharge fees, moving costs, legal expenses, etc.
When you are selling your home, it is imperative to seek the assistance of tax professionals, legal experts, and experienced real estate agents to ensure that you are fully informed about all the fees you’ll need to pay upon selling your home. Remember, the taxes and fees you must pay will depend on a broad array of factors, such as the sale price, the property’s location, and whether it is your primary or investment property.
Yes, real estate can be a wealth generator. However, you also need to be aware of the tax implications.
As the saying goes, it is better to be safe than sorry.
