Capital Gains Tax When You Sell a Home in Ontario: The 2026 Rules

The federal government once proposed raising the capital gains inclusion rate from 50% to 66.67%. That proposal was formally cancelled on March 21, 2025 (source: Prime Minister of Canada, pm.gc.ca). For 2026, all capital gains are still taxed at the 50% inclusion rate. The widely circulated \“66.67% over $250k” figure describes a rule that never took effect.

Canada has no separate \”capital gains tax” — and no estate or home-sale tax either. When you sell an asset, the gain is the proceeds minus your adjusted cost base (ACB) minus selling costs. 50% of that gain is added to your taxable income and taxed at your marginal rate.

Example: a rental condo with an ACB of $500,000 sells for net $700,000 — a $200,000 gain. Half ($100,000) is added to your income that year and taxed at your personal rate.

Case 1 — Selling your principal residence: usually tax-free

Per the CRA (2026), a family can designate one property as its principal residence per year. For every year you owned and ordinarily occupied it, the gain qualifies for the Principal Residence Exemption and is fully tax-free. A family unit (you, spouse, minor children) can only claim one principal residence in any given year.

Case 2 — Selling a rental or second home: taxable

Rentals, cottages, and second homes don’t get the exemption; 50% of the gain is taxed. Legitimate ways to reduce the bill:

• Add documented capital improvements (additions, roof, major renovations) to your ACB to shrink the gain;
• Include transaction costs (land transfer tax on purchase, legal fees, real estate commission);
• Split the gain between spouses by ownership share, which can lower the combined marginal rate.

Case 3 — Assignment sales and quick flips: often taxed as business income

This is where sellers get caught. If the CRA decides you were effectively in the business of trading real estate — frequent flips, assigning a pre-construction unit before closing, buying with the intent to resell — the profit can be taxed as business income at 100% inclusion, not a capital gain. On top of that, the property flipping rule (since 2023) deems residential property sold within 365 days to be business income by default, with limited life-event exceptions. Short holds carry real tax risk.

Moving in for a few months to recast an investment property as a tax-free principal residence is likely to be challenged. The exemption turns on genuine, ordinary occupancy and intent — not a temporary mailing address. The CRA scrutinizes pre-construction and renovation resales closely.

• \“There’s no estate tax, so an inherited home sells tax-free.\” True that Canada has no estate tax, but a later gain on inherited property can still be taxable — measured from its fair market value at the date of death.
• \“Non-residents sell like everyone else.\” They don’t. Non-residents must clear a Section 116 certificate of compliance, and the buyer must withhold part of the price — botch it and closing stalls.
• \“A tax-free sale doesn’t need reporting.\” Wrong. Even a fully exempt principal-residence sale must be reported on your return (Schedule 3 / T2091) in the year of sale; missing it can mean penalties.

Q: What is the capital gains inclusion rate for 2026?

50%. The proposed increase to 66.67% was cancelled on March 21, 2025 (source: pm.gc.ca). All capital gains, regardless of amount, are currently included in income at 50%.

Q: Is selling my own home really 100% tax-free?

If the home was your family’s principal residence for every year you owned it, the gain is generally fully exempt. You must still report the sale on your return in the year you sell, even when no tax is owed. A family can designate only one principal residence per year.

Q: Roughly how much tax will I owe on a rental I sell?

Add 50% of the gain to your income for the year and pay tax at your marginal rate. A $200,000 gain adds $100,000 to income. The exact amount depends on your total income, whether ownership is split between spouses, and what improvements and costs you can add to the cost base.

Q: How is a pre-construction assignment taxed?

It’s higher-risk. If the CRA views the deal as profit-motivated trading, the profit may be taxed as business income at 100% inclusion rather than a 50% capital gain, and a hold under 365 days can trigger the property flipping rule. Get accounting advice before assigning.