How Much Tax Do I Pay When Selling My Home in Canada?

When you sell your home in Canada, the amount of tax you may need to pay depends on several factors, including whether the property is your principal residence and whether it was used to generate income. Here’s a breakdown:

1. Principal Residence Exemption

If the home you are selling is your principal residence for every year you owned it, you may not have to pay any capital gains tax. You qualify for this exemption if:

  • You, your spouse, or your children ordinarily lived in the home.
  • You designate the property as your principal residence.

Key points:

  • You must report the sale of your principal residence on your income tax return (since 2016).
  • If the home was your principal residence for part of the time, only the portion of the capital gain related to the non-principal residence period is taxable.

2. Capital Gains Tax (If Exemption Does Not Fully Apply)

If the home was not your principal residence for the entire time you owned it, you may need to pay capital gains tax on the profit from the sale.

  • Capital gain = Selling price - Adjusted cost base (purchase price + costs related to purchase and improvements) - Selling expenses
  • Taxable portion: 50% of your capital gain is taxable.
  • Tax rate: Based on your marginal tax rate, which depends on your total income.

Example:

  • Selling price: $600,000
  • Purchase price + improvements: $400,000
  • Selling expenses: $20,000
  • Capital gain: $600,000 - $400,000 - $20,000 = $180,000
  • Taxable capital gain: 50% of $180,000 = $90,000
  • If your marginal tax rate is 33%, you would pay approximately $29,700 in taxes.

3. If the Property Was Used for Rental or Business

If you rented out part or all of the home or used it for business purposes, you may not qualify for the principal residence exemption for those years. You may also trigger a capital cost allowance (CCA) recapture, which could increase your taxable income.

4. Flipping Houses

If the Canada Revenue Agency (CRA) determines that you bought the home with the intention to flip it (buy and sell quickly for profit), the sale might be considered business income instead of a capital gain. This means 100% of the profit is taxed as income, not 50%.

5. Reporting the Sale

You must report the sale of your property on Schedule 3 of your income tax return and file Form T2091 if you are claiming the principal residence exemption.

Final Tip:

Tax rules can be complex depending on your situation. It's often a good idea to consult a tax professional or accountant to ensure compliance and minimize your tax liability.