Tax on the profit from selling a property that is not your principal residence. In Canada, the first $250,000 of capital gains is included at 50% in your taxable income, and any amount above $250,000 is included at two-thirds (66.7%) following the 2024 federal inclusion rate change. The gain is calculated as the sale price minus the original purchase price, minus eligible expenses like legal fees, real estate commissions, and capital improvements made during ownership.
Why It Matters
If you sell a rental property or cottage in Ontario, capital gains tax can take a significant bite out of your profit. On a $400,000 gain, the first $250,000 is taxed at the 50% inclusion rate and the remaining $150,000 at the two-thirds rate -- potentially adding over $225,000 to your taxable income. Planning the timing of your sale, tracking all eligible expenses, and working with an accountant can meaningfully reduce the tax hit.
Real-World Example
You purchased a rental condo in Scarborough for $400,000 in 2017 and sell it in 2025 for $580,000. Your capital gain is $180,000 minus eligible expenses: $25,000 in real estate commission, $2,000 in legal fees, and $15,000 in capital improvements (new kitchen, bathroom renovation). Your net gain is $138,000. Under the current inclusion rules, $138,000 is below the $250,000 threshold, so 50% -- or $69,000 -- is added to your taxable income. At a marginal tax rate of 43%, the tax owing is roughly $29,670.
Ontario & GTA Context
Ontario residents pay both federal and provincial tax on capital gains. The combined marginal tax rate on capital gains in Ontario ranges from about 25% on the included portion for lower-income earners to over 53% for the highest bracket. The 2024 federal budget increased the inclusion rate to two-thirds for gains above $250,000 for individuals, making careful expense tracking and timing even more important for GTA property investors.
How It Works in Practice
Keep every receipt for capital improvements -- not repairs -- since these increase your adjusted cost base and reduce your taxable gain. Consider timing your sale to a year when your other income is lower. If you are selling multiple investment properties, staggering the sales across tax years can keep more of each gain under the $250,000 threshold at the lower 50% inclusion rate.
Common Questions
What is the difference between a capital improvement and a repair?▾
Do I pay capital gains tax when I sell my principal residence?▾
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