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The capital gain on a property sale is the sale price, minus your adjusted cost base, minus selling costs. Half of the gain is added to your income. Sell a rental for $600,000 that cost $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. Put another way, you’d keep roughly $135,900 of the $170,000, a fair chunk, but the taxman still takes a real slice.
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. There’s no bright line test on the CRA pages we read, 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.
How and when do you report the sale?
You report it on the return for the year you sold, using Schedule 3 for the gain. If you want the principal residence exemption for any of the years, the sale and the designation have to be reported too, on Form T2091(IND). Don’t wait for the tax slip, because there isn’t one. A lawyer’s closing statement is where most of the numbers sit, so keep it with your records.
Set some cash aside. The bill arrives with the return, not on the closing date, and on a $170,000 gain it can be a very large number.
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. The one-half rate also applies for 2026 because the increase was cancelled. Confirm it on the CRA page when you file.
Official pages on this topic: Canada Revenue Agency: Calculating and reporting your capital gains and losses and Canada Revenue Agency: Principal residence.
Related reading: capital gains on a rental property, capital gains on a primary residence and capital gains tax in Ontario.
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.
Rechecked in November 2026 on canada.ca: the capital gain formula and 50% taxable portion, and the principal residence rules (Schedule 3, form T2091(IND), one home per family unit each year, and the 365 day rule for flipped properties).
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. For a $600,000 sale of a rental that cost $400,000, with $30,000 of selling costs, the gain is $170,000. Keep proof of each cost in case the CRA asks for support.
What counts in the adjusted cost base?
The purchase price, the costs of buying such as legal fees and land transfer tax, and the cost of additions and improvements. Routine repairs do not count. Keep the closing documents and renovation invoices, because you may need them many years later.
Is all of the gain taxed?
Half of it is added to your income. The CRA’s capital gains page shows a 50% taxable portion, and the federal plan to raise it was cancelled in March 2025. Confirm the rate when you file, because the CRA can change its page.
Can the profit be business income instead?
Yes. The CRA generally treats a Canadian housing unit owned for less than 365 consecutive days as business income, unless a qualifying life event caused the sale, and it can see a flip as business income in other cases too. Then the whole profit is taxed, not half.
Does a rental or cottage get the home exemption?
Only if you designate it for the years it qualifies, and a family unit can designate only one home as its principal residence for each year. Report the sale on Schedule 3 with form T2091(IND), because the exemption needs the designation.
- Property and tax in Canada: buying, owning and selling
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- Ontario income tax and sales tax in 2026
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- Principal Residence Exemption in Canada: Rules and Reporting