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The capital gain on a sale of property is the sale price, minus your adjusted cost base, minus what it cost you to sell. Half of that gain is added to your income. Sell a rental for $600,000 that cost you $400,000, with $30,000 of selling costs, and the gain is $170,000. An Ontario seller earning $90,000 elsewhere pays about $34,100 extra.
The formula, line by line
The CRA sets out the calculation as proceeds of disposition, less adjusted cost base, less outlays and expenses. Each piece has a meaning worth knowing.
| Piece | What goes in it |
|---|---|
| Proceeds of disposition | The sale price |
| Adjusted cost base | What you paid, the legal fees, land transfer tax and similar buying costs, and later additions and improvements |
| Outlays and expenses | Costs of selling, commission and legal fees on the sale |
| Not added to cost base | Current expenses like maintenance and repairs |
Table drawn from CRA pages on capital gains and on capital cost.
The land transfer tax you paid when you bought belongs in the cost base. That lowers the gain, and plenty of sellers forget it. If you need the amount, the land transfer tax calculator gives the figure for your province.
A worked example on a rental property
Say you bought a rental condo for $380,000 and paid another $20,000 in legal fees, land transfer tax and similar costs. Your adjusted cost base is $400,000.
You sell for $600,000 and pay $30,000 in commission and legal fees. Gain: $600,000 minus $400,000 minus $30,000, or $170,000. Half, $85,000, is the taxable capital gain on your return.
For an Ontario seller earning $90,000 elsewhere, our capital gains tax calculator gives extra tax of about $34,102. That’s 20.1% of the gain, well below the top Ontario rate, because part of the added income is taxed at lower brackets.
Is it a gain, or business income?
Some sellers aren’t reporting a capital gain at all. If you bought the property mainly to fix it up and resell it quickly, the CRA can treat the profit as business income, which is taxed differently from a capital gain. We haven’t found a bright line test on the CRA pages, so if you flip properties, that’s a question to settle before you file, not after.
The house flipping calculator shows the profit side of that kind of deal, and it isn’t a tax ruling.
Rentals, cottages and the depreciation catch
A rental or second property has no principal residence exemption unless you designate it for the years it qualifies, and only one home per family unit can be designated for a given year. So a cottage sale often lands on Schedule 3 in full.
If you claimed capital cost allowance on the building, selling for more than its remaining undepreciated value can create recapture, which is taxed as income rather than as a capital gain. Our rental income tax calculator shows what you’ve been claiming year by year.
When the property is mixed use, the CRA splits the proceeds and the cost base in proportion and works out the gain on each part separately.
What rate applies in 2026?
The inclusion rate is 50%, the rate the CRA’s capital gains page has long used. A rise to two thirds was proposed and then cancelled in a release dated 21 March 2025. We couldn’t find a CRA page that states the 2026 rate separately, so confirm it on the CRA page when you file.
Where the numbers come from
The formula, cost base items and the 50% inclusion are taken from the Canada Revenue Agency’s capital gains pages. That tax figure is calculated by our engine on 2026 federal and Ontario data, and the prices above are invented for the example.
Frequently asked questions
How do I calculate the capital gain on a property sale?
Take the sale price, subtract your adjusted cost base and subtract your selling costs. The result is the gain.
What counts in the adjusted cost base?
The purchase price, the costs of buying like legal fees and land transfer tax, and the cost of additions and improvements. Routine repairs don't count.
Is all of the gain taxed?
Half of it is added to your income. The CRA page shows a 50% inclusion rate. Confirm the current rate when you file.
Can the profit be business income instead?
Yes, if the CRA sees you as buying to resell, for example in a flip. Then it is taxed as business income, not as a capital gain.
Does a rental or cottage get the home exemption?
Only if you designate it for the years it qualifies, and one home per family unit can be designated for a given year.
- Property and tax in Canada: buying, owning and selling
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- Ontario income tax and sales tax in 2026
How Ontario income tax works in 2026: the five brackets, the surtax and health premium, the 13% HST, and the calculators that switch to Ontario
Information only. This page is general information, not tax, legal or accounting advice. Tax-Services.ca is an independent publisher: we don't prepare or file tax returns or offer tax services, and we have no connection with the CRA, Revenu Québec, any government or any company named on this page. Check the figures that matter with an official source or a qualified professional.