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Capital gains tax on a second property in Canada works on half of your profit. You pay tax on that half at your usual rates, stacked on top of the year’s other earnings, so a $170,000 gain can cost anywhere from about 15% to 24% of it, depending on what else you earned.
How is the gain on a second property worked out?
Three numbers do the job. Take what you sold it for, subtract what you paid for it plus your buying costs, and subtract what it cost you to sell. The CRA’s formula: sale proceeds, less your cost base, less the selling outlays. What’s left is the capital gain.
| Piece | What goes in |
|---|---|
| Proceeds of disposition | The sale price you received |
| Adjusted cost base | Original cost plus acquisition expenses |
| Outlays and expenses | Commissions, legal fees and similar selling costs |
| Taxable capital gain | Gain multiplied by the inclusion rate, one half in the CRA guide |
You report the result on Schedule 3, and the taxable part goes on line 12700 of your return. Nobody mails you a slip for a property sale, so the paper trail is yours to build.
What paperwork should you pull together?
Dig out the purchase agreement and the lawyer’s statement from when you bought, the invoices for any major improvements, and the closing statement from the sale. Those three show your cost, your additions and your selling costs. Say Sam in Hamilton sold a rental five years after buying it. Finding the old lawyer’s bill saved Sam from leaving thousands of dollars of cost off the return.
What does the tax look like in dollars?
Say you sell a rental condo for $650,000. You paid $450,000 and spent $30,000 on commissions and legal fees. The gain is $170,000, and $85,000 of it becomes taxable.
Now the part people forget. What else you earned that year sets the tax, so run it three ways in Ontario with the capital gains tax calculator. With $40,000 of earnings elsewhere the extra tax is $25,504.02, or 15.0% of the gain. With $90,000 it’s $34,101.85, or 20.1%. With $150,000 it’s $40,300.63, or 23.7%.
So the same sale can leave you $144,495.98, $135,898.15 or $129,699.37. If you have a choice about the year you sell, that gap is worth a look. The marginal tax rate calculator shows where your next dollar is taxed.
Can the principal residence exemption cover a second home?
It can, for some of the years, but not for the same year as your main home. Only one home per family can be named for a given year, and family means you, your spouse or partner and your dependent children. A cottage can qualify as a main home too, so a family with a house and a cottage has to decide which one to name for each year they owned both.
Reporting the sale is mandatory if you want any exemption. The CRA allows it only when you report the disposition and the designation, which means Schedule 3 and Form T2091(IND). A property that was solely your main home for every year you owned it is fully exempt. A second property that was never your home isn’t.
Who counts as your family for the exemption?
As noted above, you, your spouse or partner and your dependent children count as one family unit for naming a home in a given year. Two homes in one family can’t both be your main home for the same year. If you and your partner own separate places, you can’t each claim a different one for the same year, and that’s a trap many couples fall into. It’s worth sorting out well before you list either property.
What if you rented part of it out?
Then you split the price and the cost between the part you lived in and the part that earned rent. The exemption covers the residential part and the rest is taxed. Converting a home to a rental is also a decision point, because you can make an election under subsection 45(2) to avoid reporting a gain right then. The catch is that you can’t claim depreciation during the election period.
Rent you earned along the way is a separate matter and is taxed as income each year. For that side, use the rental income tax calculator.
What trips people up on a second property?
Forgetting the selling costs is the classic slip. They reduce the gain, and they’re easy to lose in a stack of closing papers. The reverse also happens, when someone counts renovation costs for a repair. We couldn’t confirm from the CRA pages we used where the line falls, so check before you add a big number to the cost base.
Another one is being paid over several years. If you took a mortgage back from the buyer, you may claim a reserve on Form T2017, which spreads the gain, typically over four years. To see what’s left in your pocket after a sale, the home sale proceeds calculator adds up the commission, legal fees and mortgage payoff.
Don’t forget what you keep. From a $170,000 gain taxed at 20.1%, you’re left with about $135,900. That’s a ballpark, not a promise, since your other income sets the rate.
Timing matters too. The tax bill lands with the return for the year of the sale, not the year the money arrives. Set some cash aside.
What this page is based on
The rules come from the Canada Revenue Agency‘s guidance on capital gains, the principal residence and Schedule 3, for the 2025 tax year, where the inclusion rate is one half. We haven’t found an official page that names the rate for 2026, so check it before you sell. The dollar examples come from this site’s calculator, which uses 2026 federal and Ontario rates and applies the small business lifetime exemption only if you switch it on.
Frequently asked questions
How much of the gain on a second property is taxed?
The CRA guide gives the inclusion rate as one half, so half the gain is added to your income and taxed at your normal rates.
Can I use the principal residence exemption on my cottage?
Yes, a cottage can be designated. But only one home per family can be designated for a given year, so you choose which one gets each year.
Which forms do I file when I sell?
Report the sale on Schedule 3. If you claim the principal residence exemption, you also file Form T2091(IND). The CRA allows the exemption only if you report both.
What if I get paid over several years?
You may claim a reserve on Form T2017, which spreads the gain. It is typically limited to four years.
What if part of the property was rented?
You split the price and the cost between the residential part and the rest. The exemption covers only the part you lived in.
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