Capital Gains Tax in Ontario: What Happens When You Sell Property

In Canada you pay tax on only part of a capital gain. That part is the inclusion rate, and it is 50%: half of your gain is added to your income and taxed at your marginal rate. The 2024 federal budget proposed raising the inclusion rate to two-thirds on gains over a threshold, but the federal government announced on March 21, 2025 that it was cancelling that increase. Gains remain subject to the 50% inclusion rate.

Ontario does not have a separate capital gains tax. Ontario income tax is calculated on your federal return, so the same taxable portion is taxed at both federal and Ontario rates.

Your rate depends on your total income for the year, including the taxable part of the gain. For 2026, Ontario's top combined federal and provincial rate is 53.53% on income above about $258,000 of taxable income, so the top rate on a capital gain is about 26.76% (half of 53.53%). Lower brackets mean lower rates, and a large gain can push you into a higher bracket in the year of sale.

Tax brackets and thresholds change every year, so confirm the current figures before you plan a sale.

Your capital gain is the proceeds of disposition minus the adjusted cost base (ACB) and your outlays and expenses on the sale.

• Proceeds: the sale price, or fair market value if you gift property or sell it to a non-arm's-length person.
• ACB: what you paid, plus legal fees, land transfer tax and other acquisition costs, plus the cost of capital improvements (not repairs).
• Selling costs: real estate commissions, legal fees and similar costs.

Keep your closing statements, renovation invoices and records for as long as you own the property and for years afterward. The CRA can ask for them, and missing records are a common reason an assessment goes against the taxpayer.

If you claimed capital cost allowance (depreciation) on a rental building, the CRA can recapture it when you sell. Recapture is added to your income in full as ordinary income. It is not eligible for the 50% inclusion rate. This surprises many landlords. If you sold for less than the remaining undepreciated cost, you may have a terminal loss instead.

• Report the sale on Schedule 3 (Capital Gains) of your T1 return for the year of sale.
• If part of the property was your home, designate it on Form T2091 (IND). See the principal residence exemption in Ontario.
• If you receive the price over several years, you may be able to claim a reserve to spread the gain, generally over up to five years, with conditions.
• Capital losses can be used against capital gains only. Unused net capital losses can be carried back three years or forward without a time limit.

• Capital gain or business income? If you bought to resell at a profit, the CRA can treat the full profit as business income. See the flipping rule.
• Gifts and family sales. Giving property to a child or selling it for less than market value is generally treated as a sale at fair market value for tax purposes.
• Inherited property. The tax on death and the value you use for the beneficiary's cost can be disputed. See estate planning tax strategies.
• Unreported sales. The CRA says it reviews real estate transactions. A missed sale can lead to arrears interest and penalties.
• Valuation and cost base. The CRA may challenge an appraisal, renovation costs or personal use.
• Non-resident sellers. Special notice and withholding rules apply. See non-residents selling Ontario property.

Some small-business shares and farm or fishing property may qualify for the lifetime capital gains exemption, but that is a separate set of rules from real estate.

You generally have 90 days from the date of the notice of reassessment to file a notice of objection (individuals may have longer in some cases). If the CRA confirms the reassessment, you generally have 90 days to appeal to the Tax Court of Canada. A tax lawyer can review your records, prepare your objection and, where needed, appeal. See real estate tax disputes.