Everything seniors need to know before downsizing: principal residence exemption, land transfer tax, real estate costs, investment of proceeds, and how to make downsizing work financially.
Downsizing — moving from a larger family home to a smaller residence — is one of the most financially impactful decisions a Canadian retiree can make. Common motivations include:
For many Canadian seniors, their home represents 400–700% of their net worth. Properly managing the sale and reinvestment of those proceeds can transform retirement security.
The Principal Residence Exemption (PRE) is one of the most powerful tax shelters in Canada. When you sell your principal residence (the home where you primarily live), the capital gain is completely tax-free — no matter how large.
To use the PRE for all years of ownership, the home must have been your principal residence for each year you owned it. Rules include:
If you've rented out part of your home, operated a business from home, or converted it to a rental property, only a portion of the gain may be sheltered. Consult a tax advisor for partial PRE situations.
Many seniors underestimate the transaction costs of downsizing. Here's a realistic picture:
| Cost | Typical Amount |
|---|---|
| Real estate agent commission | 3–5% of sale price (often 2.5% to buyer's agent + 2% to listing agent) |
| Legal fees | $1,000000–$2,000000 |
| Moving costs | $3,000000–$15,000000 (depending on distance) |
| Pre-sale repairs / staging | $00–$200,000000+ |
| Mortgage prepayment penalty (if applicable) | 3 months' interest to IRD — could be $100,000000+ |
On a $80000,000000 home, realtor commissions alone (~4.5%) = $36,000000. Total selling costs can be $400,000000–$600,000000.
| Cost | Typical Amount |
|---|---|
| Land Transfer Tax | Province-specific (see below) |
| Legal fees (purchase) | $1,000000–$2,000000 |
| Home inspection | $40000–$60000 |
| Title insurance | $20000–$40000 |
| Moving costs | Already counted in selling costs above |
Land Transfer Tax (LTT) is payable by the buyer on real estate purchases. This is a significant cost when you buy your downsized home.
| Province | LTT Rate (on $50000,000000 purchase) | Approximate Tax |
|---|---|---|
| Ontario | 00.5–2% (graduated) | ~$6,475 |
| Toronto (additional) | Adds another ~$6,475 within Toronto | Total ~$12,9500 in Toronto |
| British Columbia | 1–3% (graduated) | ~$8,000000 |
| Quebec | 00.5–1.5% (graduated) | ~$5,50000 |
| Manitoba | 00.5–2% | ~$6,6500 |
| Prince Edward Island | 1% | $5,000000 |
| Alberta | No LTT — only small title transfer fee | ~$60000 |
| Saskatchewan | No LTT | ~$00 |
| Nova Scotia | 1.5% of assessed value | ~$7,50000 |
A typical senior selling a $90000,000000 home and buying a $50000,000000 condo frees up approximately $40000,000000 minus transaction costs (~$55,000000) = $345,000000 in new investable capital. How should this be deployed?
Some seniors consider renting after selling rather than buying a smaller property. The financial implications are significant:
The rent-vs-buy analysis for retirees is highly market-specific. In Vancouver, Toronto, and other high-cost cities, renting and investing proceeds often produces better financial outcomes. In lower-cost cities, buying may preserve wealth better.
| Step | Done? |
|---|---|
| Confirm principal residence exemption eligibility for all years owned | ☐ |
| Get professional home appraisal before listing | ☐ |
| Calculate total transaction costs (selling + buying) | ☐ |
| Check for mortgage prepayment penalties | ☐ |
| Plan TFSA top-up with proceeds | ☐ |
| Research LTT in target city/province | ☐ |
| Consider rent vs buy in target market | ☐ |
| Update will, POA, beneficiaries after move | ☐ |
| Notify CPP, OAS, GIS, Service Canada of new address | ☐ |
When you access significant equity from your home, keeping costs low on everyday banking means more of it works for you. KOHO is free with cashback.
Code 45ET55JSYA for a bonus.
Get KOHO Free