Capital Gains Tax on Real Estate Canada 2026

When you sell a Canadian real estate investment property at a profit, capital gains tax applies. For individuals, Canada's capital gains inclusion rate is 50% — meaning only half of your capital gain is added to your taxable income. This is significantly more favourable than the 100% inclusion rate for ordinary income like rental income or employment income. Understanding how to calculate your capital gain, what qualifies as Adjusted Cost Base, and when exemptions apply is essential for every Canadian real estate investor.

Capital Gains Calculator — Real Estate Canada

Canada's Capital Gains Inclusion Rate for Individuals

For individual Canadian taxpayers, the capital gains inclusion rate is 50% — only half of your realized capital gain is included in taxable income. This has been the rate for individuals since 2000 and remained at 50% following the 2024 federal budget (which raised the inclusion rate to 2/3 for gains above $250,000 annually — but this measure was reversed before taking effect). Verify the current rate with a tax professional as legislation continues to evolve.

For corporations and trusts, the inclusion rate has been 2/3 (66.67%) since June 2024. This has significant implications for investors holding real estate inside corporations.

What Is Adjusted Cost Base (ACB)?

Your ACB is the "cost" of your property for tax purposes — it determines how large your capital gain is on sale. Your ACB equals: original purchase price + purchase costs (legal fees, land transfer tax, inspection) + capital improvements made during ownership − any CCA you've claimed.

Capital improvements (not repairs) that increase the value or extend the useful life of the property are added to your ACB: kitchen renovation, roof replacement, addition, foundation repair, etc. Repairs that maintain current condition (painting, fixture replacements, minor repairs) do not increase ACB — they're deductible as current expenses in the year incurred.

Selling Costs That Reduce Your Capital Gain

These costs are deducted from your proceeds before calculating the capital gain:

• Real estate commission (typically 3–5% of sale price)
• Legal fees for the sale transaction
• Mortgage prepayment penalties (if breaking a fixed mortgage)
• Home staging costs directly related to sale
• Survey costs required for the sale

Principal Residence Exemption (PRE)

The principal residence exemption is Canada's most valuable real estate tax benefit. If a property was your principal residence for every year you owned it, the entire capital gain is tax-free. You don't even need to report the gain if the full exemption applies.

To designate a property as your principal residence: the property must be "ordinarily inhabited" by you or your spouse/common-law partner/children at some time during the year; you must designate it on Schedule 3 of your return; and only one property per family unit can be designated per year.

Capital Loss Carryforward Rules

If you sell an investment property at a loss, you have an allowable capital loss (50% of the loss). Capital losses can only offset capital gains — not other income. Allowable capital losses can be carried back 3 years or forward indefinitely to offset capital gains in other years. Strategic timing of capital gains and losses is a key tax-planning tool for portfolio investors.