Updated: April 2025  |  bremo.io financial guides

Downsizing in Retirement Canada — Financial Guide

For many Canadian retirees, the family home is their largest asset. Downsizing — selling a larger home and purchasing something smaller — can unlock significant capital, reduce ongoing costs, and simplify life. But the financial picture of downsizing is more nuanced than it first appears. Here is what you need to know.

The Financial Case for Downsizing

If your home has appreciated significantly over decades of ownership, selling it can generate substantial, tax-free capital gains (thanks to the principal residence exemption). The proceeds can:

• Fund retirement income directly
• Reduce debt
• Be invested in RRSPs, TFSAs, or non-registered accounts
• Purchase a more manageable, lower-cost property

The Principal Residence Exemption

Canada's principal residence exemption allows you to sell your home with no capital gains tax, as long as it has been your principal residence for all years of ownership. This is one of the most valuable tax benefits available to Canadians and makes downsizing particularly attractive from a tax perspective.

True Cost of Downsizing

The transaction costs of buying and selling are significant:

• Real estate commissions: 2-5% of sale price (seller pays)
• Land transfer taxes on the purchase (varies by province, city)
• Legal fees: $1,500-$3,000 each for buy and sell
• Moving costs: $2,000-$100
• Renovations or repairs on the new property
• Condo fees if moving into a condominium

On a $900,000 sale, real estate commissions alone could be $27,000-$45,000. Factor these in when calculating the net proceeds.

Downsizing Options

Move to a Smaller House

Same or nearby area, just smaller. Maintains familiar surroundings, community, and healthcare relationships while reducing maintenance and property taxes.

Condominium Living

Condos eliminate exterior maintenance. Monthly condo fees ($400-$1,200+) replace lawn care, snow removal, and building upkeep. Popular in urban centres for seniors seeking walkable, accessible communities.

Retirement Community

Independent living communities offer built-in social connections, amenities, and some services. More expensive than standard condos but provide a supportive community environment.

Relocate to a Lower-Cost City

Selling in Vancouver or Toronto and buying in Victoria, Hamilton, or a smaller city can free up $300,000-$700,000 in equity while maintaining quality of life.

Renting

Some retirees sell their home and choose to rent, fully liquidating home equity. This provides maximum liquidity and flexibility. The risk is rent increases and lack of stability in later years.

Impact on Government Benefits

Investing the proceeds from a home sale can increase your investment income, which may affect GIS eligibility or OAS clawback. Plan carefully — placing proceeds into a TFSA shields them from income testing. Stagger RRSP contributions if you have available room.

Timing the Move

Most financial planners recommend downsizing in your late 60s to early 70s while you are healthy, mobile, and capable of managing the transition. Waiting until a health crisis forces a move is more stressful and can limit your choices.