How much of a capital gain is taxed in Canada?

Under current rules, half of the gain is taxable. That taxable portion is added to your income and taxed at your marginal rate, so your actual cost depends on your tax bracket.

Do I pay capital gains tax on my own home?

Generally no. A qualifying principal residence is usually fully exempt through the principal residence exemption. Capital gains tax mainly applies to second homes, cottages, and investment properties.

What is the adjusted cost base?

It is generally what you paid for the property plus eligible purchase costs and capital improvements. A higher cost base lowers your taxable gain, so keeping records of renovations matters.

Mortgage Glossary

What is Capital Gains Tax?

Capital gains tax is the tax you owe on the profit when you sell a property that is not your principal residence, such as a rental, cottage, or investment property. In Canada, only half of the gain is included in your taxable income and then taxed at your marginal rate. Your principal residence is generally exempt from this tax.

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Quick answer

Also known as: capital gains, gains tax on property

Key points

Applies to property that is not your principal residence, like rentals and cottages.
Only half (50%) of the gain is taxable under current Canadian rules.
The taxable half is added to income and taxed at your marginal rate.
Your adjusted cost base includes purchase price plus eligible costs and improvements.
A qualifying principal residence is generally fully exempt.
Inclusion rates and rules can change, so confirm before selling.

Capital Gains Tax explained

A capital gain is the difference between what you sell a property for and your adjusted cost base, which is generally what you paid plus eligible costs and improvements. When you dispose of a property that is not your principal residence, that gain may be subject to tax. Under current Canadian rules, half of the gain (the taxable portion) is added to your income for the year and taxed at your marginal rate.

This applies to second homes, cottages, and investment or rental properties. The actual tax depends on your income and tax bracket, since only the taxable half is added to your other income. The 50% inclusion rate and related rules can change, so it is wise to confirm the current treatment before selling.

What a Capital Gains Tax is for

Capital gains tax is how the government taxes the increase in value of investment and secondary properties when they are sold. It ensures that profit earned from property that is not your main home is treated as taxable income, while leaving everyday home ownership in a principal residence largely untouched. It is a key consideration in real estate investing and estate planning.

How it can help you

Understanding capital gains tax helps you plan a sale and avoid a surprise tax bill, because the taxable portion can meaningfully affect your net proceeds. It also informs decisions like which property to designate as your principal residence. Lenderoo shops 40+ lenders for free, so when you reinvest sale proceeds into a new purchase you can compare financing without overpaying on the mortgage side.

When it comes up

Capital gains tax comes up when you sell a rental property or cottage that has appreciated. Knowing that only half the gain is taxable, and at your marginal rate, lets you estimate the bill, set aside funds, and time the sale, perhaps to a year when your income is lower, to reduce the overall tax.

Example: Selling a rental property

Suppose you bought a rental condo for $400,000 and later sell it for $550,000, after eligible costs leaving a gain of about $140,000.

Under current rules, half of that gain, roughly $70,000, is added to your taxable income for the year. If your marginal tax rate is around 40%, you would owe roughly $28,000 in tax on the sale. The other half of the gain is not taxed. Rates and inclusion rules can change, so confirm the current treatment before you sell.

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Questions & answers

Capital Gains Tax: frequently asked questions

Common questions Canadians ask about capital gains tax.

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