When is capital gains tax payable on the sale of property? And at what rate are capital gains taxed? We answer these questions and more.
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Capital gains. Even the mention of these two words together can immediately conjure myths about owing the government 50% of the money earned from selling a home. But, like most rumours, it’s only half true.
Every week, our inbox is full of letters from readers asking how to avoid the capital gains tax. They want to know how to work the system and keep more money in their pockets. Listen, it’s valid to want to hold on to the money earned off of the sale of a secondary residence (cottage, second home) and an investment property (rental or commercial property). But the idea that you’re forking over half your money simply isn’t true. The need to dispel this rumour is what inspired this guide to capital gains on the sale of property, which will answer the most common questions with our most popular articles on the topic.
And while we cannot show you how to avoid taxes (it’s one of two things you can’t avoid in life—death is the other), I can share insights on how to use any Canada Revenue Agency (CRA) rules in your favour.
According to the MoneySense Glossary, “a capital gain is the increase in value on any asset or security since the time it was purchased, and it is ‘realized’ when the asset or security is sold.” In the case of this article, the asset we are dealing with is property, which could be a cottage, second home, investment or rental property, as stated above.
Watch: Capital gains tax, explained
Our definition of capital gains begs the question: “Can you have a capital loss?” Yes, you can. A capital loss occurs when you sell a property for less money than you originally purchased it for. In some cases, you might be able to use a capital loss to reduce your income for your tax return, if you are reporting capital gains in the same year.
Speaking of tax, a capital gains tax is the money owed in taxes from the income earned. It’s not a specific tax, per se…. But more on that below.
For more on the ins and outs of how capital gains works, read: Capital gains explained.
Before we dive into the tax part, let’s go through how to calculate capital gains on the sale of a property. Essentially, this calculation figures out how much the property’s value grew from when you first bought it to the day you sold it.
CAPITAL GAIN = PURCHASE PRICE – SELLING PRICE
This above is a simple-math calculation of the capital gain. But, also can dive even deeper to reduce the amount of capital gains you would claim on your tax return (more on that below).
So, it’s not that capital gains are taxed at a rate of 50%, but it’s that 50% of the capital gains are taxable. And the capital gains tax rate depends on the amount of your income. You add the capital gain to your income for the year, including money you receive from your job, side hustles, dividends in non-registered accounts, any selling of assets and so on.
Capital gains are taxed as part of your income on your personal tax return. Below are the federal tax brackets for 2022, which can give you an idea of how much tax you may owe for the year. You will need to figure out the provincial tax bracket rate for your province or territory, too. Since Canada has a tiered tax system, you will have to do a bit of math to estimate your annual income tax, breaking down your total tax into the brackets, and the amount owed for each bracket.
And, of course, to really get down to the nickel of how much you ultimately owe, you will need to do your tax return and receive a notice of assessment.
| Annual Income (Taxable) | Tax Brackets | Tax Rates | Maximum Taxes Per Bracket | Maximum Total Tax |
| Up to $50,197 | The first $50,197 | 15% | $7,529.55 | $7,529.55 |
| $50,197 to $100,392 | The next $50,195 | 20.5% | $10,289.98 | $17,819.53 ($7,529.55 + $10,289.98) |
| $100,392 to $155,625 | The next $55,233 | 26% | $14,360.58 | $32,180.11 ($17,819.53 + $14,360.58 |
| $155,625 to $221,708 | The next $66,083 | 29% | $19,164.07 | $51,344.18 ($32,180.11 + $19,164.07) |
| Over $221,708 | Over $221,708 | 33% | n/a | n/a |
It’s worth noting that there can be other factors for calculating capital gains. Here are some articles that delve deeper into some of these specific situations.
It’s not so much that you can avoid capital gains tax, but that there are CRA rules that you can take advantage of to reduce the amount you may owe. Here are a few:
First is the principal residence exemption. You don’t pay tax on the sale of your home, but you may have to for a secondary property or residence, and/or investment property. According to the CRA, a property is exempt from capital gains tax if your situation meets these four criteria:
There is also accounting for outlays and expenses. From your capital gain, you can subtract the costs necessary for selling the property, such as renovations and maintenance expenses, finders’ fees, commissions, brokers’ fees, surveyors’ fees, legal fees, transfer taxes and advertising costs.
You can also claim capital losses when you have capital gains. So if you have assets, not limited to property, that you earned income on, you can lower your gains by applying your capital losses to that amount (until it reaches $0). That can be losses from other property, investments in non-registered accounts, and other capital.
The Ask MoneySense column has answered the following questions on reducing the amount of income for capital gains:
The obvious answer is whomever is earning the capital gain, right? Not always. There can be less obvious scenarios involving multiple owners or even unfortunate situations that include the death of a property owner. If that’s the case for you, our readers can relate. Here are some of the tricky circumstances they have faced when selling a property.
We also have a category of questions about capital gains that can’t be categorized, but these articles are popular with readers. So we hope that they may be an asset to you, too—free of charge (see what I did there?).
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my husband and I bought a cottage for $75000.00 (1992) we had to basicly tear it down to the stud, to insulate walls floors, etc, spent approx $140.000.00, My husband passed away in 2016 , I decided to sell in2021 sold $650000.00, My income is approx $43000.00
I am so worried how much I’ll have to pay this year, Do we not get a one time Capital Gain exception for $$
Do I need to get the property assessed, and call the municapal office to north to see how much the property was worth in 1992, I’m all by myself and have no one to ask?? I know I will be paying alot, but, I did put $$ into a non-register fund, will that help, silly me didn’t buy an RRSP, owell…. any suggestions??
Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.
Do I have to pay capital gain tax in instalments in 2022 (I sold my investment property in February 2022), or in April 2023.
Thank you
my daughter bought a house. i am her mother and have lived in it full time she comes and goes. she is selling can she claim it as her principal residence
Thank you for the question. We invite you to email it to [email protected], where it will be considered for future articles.
@peggysmith I believe you should of got your house appraised after you completed your renovations, which would result in a higher value than the following. You can assume that your property was worth 75k+140k after your renovations 215k). Selling for 650k means your capital gain is 435k. If the above is correct, you only pay capital gains on 50% of that and at the tax bracket applicable to your total income for the year: 33%. So 50% of 435k = 217.5k * 33% = 71,775 in taxes. Your total take home profit from the sale is 363,225. Hope that makes sense and that I did this right. Also note that I assume this is not your principal residence.
@rayka if your capital gains falls under a business, whereas the property sold was owned by a business you own, and that business pays HST, you may be required to pay quarterly installments, otherwise you may be fined. However, if the property was not owned by a company, it is considered personal income and you need only report and pay yearly (April 2023)
We have just sold a property that was bought 12 years ago while my daughter attended university. She lived there for the first 3 of the years. Does this effect the Capital Gains claim at all?
We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.
What if I sell a 2nd house or cottage and bought a 3rd for same value within a year of sale of the 2nd, will there be any capital gains towards the 2nd or 3rd house/cottage?
Hello, my brother holds the mortgage for the property I live in, he was simply the bank, I pay all expenses, the mortgage term is up and as per our original aggreement he will now sell me the property for the balance of the mortgage, the kicker is he was told he will have to pay Capital gains on the market value not the sale price, it that correct?
thanks
My husband and I bought 2.311 acres of property in BC which included our principal residence for 30 years before we sold it last year to a developer. Will we be required to pay capital gains because it’s over the amount specified for principal residence?
My wife and I own a rental property that was our first home, purchased in the 1980’s. We had an assessment done when we moved out and bought the home we live in now. If we sell the home, will capital gains be applied to the original price or on the assessment that we did when we moved out
My mother recently died and as a result of Probate we found out that the property she lived on was subdivided in 1994. The executors sold the property and were required to pay capital gains tax which resulted in a large tax biil for the estate. My question is—was my Mother qualified to claim a Lifetime Tax Exemption on the spare lot that was sold?