When you sell a rental property in Canada, you'll owe tax on the profit you made from the sale. This profit is called a capital gain, and in 2026, 50% of your capital gain is added to your income and taxed at your marginal rate. If your total capital gains for the year exceed $250,000, the inclusion rate jumps to 66.67% on gains above that threshold. The amount of tax you owe depends on your total income for the year and which tax bracket you fall into. When you sell rental property, the Canada Revenue Agency (CRA) calculates your capital gain by subtracting your adjusted cost basis from the selling price. Your adjusted cost basis includes what you originally paid for the property plus any capital improvements you made (like a new roof or foundation repair), but not ongoing maintenance costs. For example: - Purchase price: $400,000 - Capital improvements over time: $50,000 - Selling price: $550,000 - Capital gain: $100,000 - Taxable capital gain (2026, under $250,000): $50,000 (50% inclusion) This taxable amount then gets added to your other income and taxed at your marginal rate.
In 2026, 50% of your capital gain is taxable if your total capital gains are $250,000 or less. If your total gains exceed $250,000, the inclusion rate rises to 66.67% on the amount above $250,000. The taxable amount is then added to your income and taxed at your marginal rate.
Yes, but only for the years you actually lived in the property as your principal residence. Once you convert it to a rental property and designate it as such, you cannot claim the exemption for any gains that occur after that date.
You can deduct your adjusted cost basis (original purchase price plus capital improvements) and selling costs like real estate commissions and legal fees. Routine maintenance and repairs cannot be deducted from the capital gain because they are operating expenses claimed annually.
Yes, you must report all capital gains on Schedule 3 (Capital Gains or Losses) of your T1 General tax return, even if you don't owe tax on the gain. The CRA tracks all property sales and can match your report to title transfer documents.
Start with what you paid to purchase the property, then add the cost of any capital improvements (like a new roof or finished basement). Keep receipts for all improvements. Your adjusted cost basis is then subtracted from the selling price to find your capital gain.