If you’re thinking about selling your home in Ontario, you’ve probably asked yourself this question — and it’s a good one. The answer depends on a few key factors, and understanding them could save you thousands of dollars. Let’s break it down in plain language.
Note: This blog is intended for informational purposes only and does not constitute tax or legal advice. Please consult a qualified tax professional or accountant regarding your specific situation.
What Is Capital Gains?
When you sell an asset for more than you paid for it, the profit you make is called a capital gain. In real estate terms, if you bought your home for $400,000 and sold it for $700,000, your capital gain would be $300,000 — at least before factoring in your costs of selling (more on that shortly).
Capital gains apply to many types of investments, including stocks, rental properties, and real estate. However, your primary residence — the home you live in — is treated very differently under Canadian tax law, which is great news for most homeowners.
How Are Capital Gains Taxed in Canada?
In Canada, capital gains are not taxed at 100%. Instead, only a portion of the gain is added to your income and taxed at your marginal tax rate.
As of 2024, the capital gains inclusion rate is:
- 50% on the first $250,000 of capital gains in a given year (for individuals)
- 66.67% on capital gains above $250,000
So if you had a $300,000 capital gain and it was fully taxable, you wouldn’t pay tax on the full $300,000. You’d add a portion of it to your income and pay tax based on your personal tax bracket.
That said, for most Ontario homeowners selling their primary residence, the capital gains tax may not apply at all — thanks to the Principal Residence Exemption.
Getting ready to sell your home? You’ll find more helpful advice in these blogs!
- Staging A House To Sell: How It Works
- How to Prepare Your Home For Sale
- A Guide to Real Estate Fees in Ontario
What Is the Principal Residence Exemption?
The Principal Residence Exemption (PRE) is one of the most valuable tax benefits available to Canadian homeowners. It allows you to shelter the capital gain on the sale of your home from tax entirely — as long as the property qualifies as your principal residence.
To qualify, the property must:
- Be a housing unit (house, condo, cottage, etc.)
- Be owned by you or your family
- Have been ordinarily inhabited by you, your spouse, or your children during the years you’re claiming the exemption
In most cases, if you’ve lived in your home as your primary residence for every year you’ve owned it, you will owe zero capital gains tax when you sell — regardless of how much it has appreciated in value.
What If I Only Lived There for Part of the Time?
If you rented out your home for a period or used it partly for business purposes, the exemption may only apply to the years it was your principal residence. In these cases, you may owe tax on a prorated portion of the gain. This is a situation where speaking with a tax professional is strongly recommended.
Claiming The Exemption
Since 2016, the CRA (Canada Revenue Agency) requires homeowners to report the sale of their principal residence on their tax return — even if no tax is owed. You’ll need to report the sale on Schedule 3 and designate the property as your principal residence for the applicable years.
What About Cottages and Investment Properties in Ontario?
The Principal Residence Exemption only applies to one property per family unit per year. If you own both a primary home and a cottage or investment property in Ontario, only one can be designated as your principal residence for any given year.
Capital gains on the sale of a rental property or investment property in Ontario are fully subject to tax at the applicable inclusion rate. If you’re selling a property that was never your principal residence, you should work with an accountant to understand your tax liability before you list.
The Costs of Selling a House Can Reduce Your Capital Gain
Here’s something many sellers overlook: the costs of selling your house can be used to reduce your capital gain — if the sale is taxable.
Eligible selling costs that can be deducted include:
- Real estate agent commissions (typically 3–5% of the sale price in Ontario)
- Legal fees for the sale transaction
- Home staging costs in some cases
- Repairs or improvements made specifically to prepare the home for sale
These deductions are applied to your Adjusted Cost Base (ACB) — essentially your total investment in the property — which lowers the taxable gain. For example, if you paid $400,000 for your home and spent $20,000 in eligible improvements and selling costs, your ACB would be $420,000, reducing your capital gain accordingly.
On the hunt for more home selling advice? Read these blogs next!
- How to Sell and Buy a House at the Same Time
- How to Add Value to Your Home Before Selling it
- How to Sell a House After a Divorce
A Quick Summary for Ontario Home Sellers
- If you’ve lived in your home as your primary residence for the full period of ownership, you likely owe no capital gains tax thanks to the Principal Residence Exemption.
- If the sale is partially or fully taxable, only a portion of the gain is included in your income — not the full amount.
- The costs of selling your house — including real estate commissions and legal fees — can reduce your taxable gain.
- Always report the sale of your home on your tax return and consider working with a tax professional if your situation is complex.
Thinking About Selling Your Home in Ontario?
Understanding the tax implications is just one piece of the puzzle. The Ambler Real Estate Team is here to help you navigate the full process — from pricing your home correctly to maximizing your net proceeds when you sell.
Reach out to the Ambler Real Estate Team today and let’s talk about how to make your next move the right one.
Thinking of selling? We can help! Get in touch! Call 416-884-8027 or email team@amblerhomes.com
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