Updated Checked by the Tax-Services.ca editorial team How we check
If the house was your principal residence in every year you held it, the capital gain on the sale is tax free. But since the 2016 tax year you have to report the sale on your return, or the CRA won’t give you the exemption.
When is the capital gains on a home sale tax free?
The principal residence exemption wipes out the gain if your home was solely your principal residence in each year you held it. It covers houses, cottages, condos, apartments, mobile homes and houseboats. The CRA’s own principal residence page sets out the rules.
Only one home per family unit can be designated for any given year. Your family unit is you, your spouse or common-law partner, and your children under 18, unless they have families of their own. So a couple who own a house and a cottage can’t shelter both for the same year. They pick one, or split the years between them.
Take Sam and Jo in Calgary, who own a house and a lake cottage. Every summer they use both, and both feel like home. Still, for any one year only one of them gets the label. Which one is worth thinking about before either is sold, since the one that gained more usually deserves the designation.
Land has a limit too: normally half a hectare (1.24 acres) around the home. More can qualify if local rules force a bigger minimum lot, or if you can show you need it to use the home.
What do you have to report when you sell?
| Situation | What to file |
|---|---|
| Home was your principal residence throughout your ownership | Report the sale on Schedule 3 and designate it; Form T2091(IND) for the details |
| It wasn’t your principal residence for some years | Complete Form T2091(IND) for the part of the gain tied to those years |
People used to skip this step when the gain was fully exempt. That ended with the 2016 tax year. Report it every time, even when the tax comes to zero.
What does a home sale cost in tax when it isn’t exempt?
Take a home in Ontario that sold for $950,000. You paid $600,000, it wasn’t your principal residence, the commission was 5%, legal fees were $2,000 and repairs and staging were $3,000. You earn $80,000 otherwise.
The home sale proceeds calculator gives a gain of $297,500 and tax of $63,387 on it. After a $380,000 mortgage payoff and costs, you keep $447,938. If the same sale qualifies for the exemption, there’s no gain, no tax, and you keep $511,325. The exemption is worth $63,387 here, and that’s why the paperwork matters.
Check the gain by hand and it adds up: $950,000 less $600,000 less $52,500 of commission, legal and repair costs leaves $297,500. The $52,500 is 5% commission ($47,500) plus the $2,000 and $3,000. The calculator also adds 13% HST on the commission, $6,175, which is why your cash is a bit less than a simple subtraction.
Half the gain is taxed in this calculator. None of the CRA pages we read states a 2026 inclusion rate. The plan to raise it to two-thirds was cancelled in the Prime Minister’s release of 21 March 2025. So treat 50% as the working figure and check when you file.
To see the same gain without the selling costs and the mortgage, try the capital gains calculator.
Does renting out the house change the answer?
Yes, and it catches people out. When a home switches from personal use to rental, or the other way, the CRA treats it as if you sold it and bought it back that day at its market value. The gain for the years it wasn’t your principal residence has to be reported. If you’re weighing a rental, the rental income tax calculator shows the income side.
If part of your home is a business space and you claim depreciation on it, the exemption can suffer later. That’s a reason to read the business rules before you deduct a room.
What if you sell a home you only owned for a few months?
That’s a different rule. The CRA says a housing unit in Canada that you owned for less than 365 consecutive days before selling is deemed to be business income, not a capital gain, unless the property was already inventory. Certain life events, such as a death, a separation or losing your job without choosing to, can switch that off. If your sale was close to the line, read the CRA page before you file.
Mistakes and limits
Forgetting to report is the expensive one, since the exemption depends on it. Next comes assuming a second property is also covered. Then there’s leaving out costs that reduce the gain, such as commission and legal fees.
One rule we left out: you can sometimes designate a second home in a year when you sell one home and buy another. The CRA describes it, and the conditions deserve a slow read. Not modelled either: foreign homes, inherited homes and homes held through a trust.
Where the facts come from
The exemption rules, family unit definition, lot size and reporting requirements come from the Canada Revenue Agency‘s pages on principal residence, read in September 2026. The example uses our calculator’s 2026 Ontario figures. We aren’t a government service and we don’t speak for one.
Frequently asked questions
Do I pay capital gains tax when I sell my house in Canada?
Not if it was your principal residence throughout your ownership. You still have to report the sale on your return.
Do I have to report the sale of my home?
Yes. For 2016 and later tax years the CRA only allows the exemption if you report the sale and designate the home.
Can I have two principal residences?
Not in the same year. Only one property per family unit can be designated for any given year.
What happens if I rent the home out for a while?
A change of use is treated as a sale and repurchase at fair market value, so part of the gain may be taxable.
Is the inclusion rate 50% in 2026?
We couldn't find a 2026 rate on a CRA page, so we use 50%. The increase to two-thirds was cancelled on 21 March 2025.
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