Selling a House in Ontario Taxes: What Applies and What Does Not

The short answer

Most questions about selling a house in Ontario taxes come down to one federal rule. For most owners the only tax question is whether the gain is covered by the principal residence exemption, which the Canada Revenue Agency (CRA) runs. If the house was solely your principal residence for every year you owned it, the CRA says you do not pay tax on the gain.

The catch is paperwork. The exemption is only allowed if you report the sale and designate the property on your tax return. A few situations change the answer: a house owned for less than a year, a second property, a home partly rented out, a newly built or substantially renovated house and a seller who lives outside Canada.

This post explains how each rule works. It is general information and not tax or legal advice, so confirm your own situation with an accountant and your real estate lawyer.

Selling a house in Ontario taxes at a glance

Tax or rule	Who it falls on	When it matters to a seller
Capital gains tax	Seller, through the income tax return	When the principal residence exemption does not cover the whole gain
Residential property flipping rule	Seller	When the home was owned for less than 365 consecutive days
GST/HST	Seller, on a taxable sale	Newly built or substantially renovated homes, not most resale homes
Non-resident withholding	Seller, with the buyer able to hold back funds	When the seller is not a resident of Canada
Ontario land transfer tax	Buyer	Never paid by the seller
City of Toronto municipal land transfer tax	Buyer	Never paid by the seller

Property tax is the one carrying cost that runs right up to closing. Our post on Toronto property tax explains how the year’s bill is set and how it is adjusted when the house sells.

The principal residence exemption and how to claim it

The CRA’s rule is short: if the property was solely your principal residence for every year you owned it, you do not pay tax on the gain. Three details decide whether it applies in full.

• One home per family per year. You can only designate one home as your family’s principal residence for each year. A cottage or a condo held at the same time competes for those years.
• The land counts, within a limit. The CRA says the land you can treat as part of a principal residence is usually limited to half a hectare.
• Losses do not count. A home is personal-use property, so if you sell it for less than you paid, the CRA does not allow you to claim the loss.

When you sell and buy in the same year, the CRA’s “plus 1” rule lets both properties be treated as eligible for that year. You must be resident in Canada in the year the principal residence was purchased. Our Toronto downsizing guide shows where the exemption fits in a move to a smaller home.

Reporting the sale

The CRA says it will only allow the exemption if you report the disposition and the designation on your income tax and benefit return. That means Schedule 3 (Capital Gains or Losses) and Form T2091(IND), the designation form, for the year of the sale.

If you forget the designation, the CRA says it is very important to ask it to amend your return for that year. It will accept a late designation in certain circumstances, but a penalty may apply. Give your accountant the closing date, sale price and purchase records early so the designation is not missed.

When part of the house was rented or used for business

A basement apartment or a home office changes the calculation. Where only part of the home qualifies as your principal residence and the other part earned income, the CRA says the sale price and the adjusted cost base are split between the two parts. A split by square metres or by rooms is acceptable if it is reasonable. Only the gain on the income-producing part is reported.

The whole house can keep its principal residence status when the income use is minor. The CRA lists three conditions:

1. The income-producing use is ancillary to the main use of the property as a residence.
2. There is no structural change to the property.
3. No capital cost allowance is claimed on the property.

Changing the use of a whole property is treated differently. The CRA says that every time you change the use of a property, you are considered to have sold it at its fair market value. Moving out and renting the house before the sale is a conversation to have with an accountant first.

The flipping rule: homes owned less than 365 days

Since January 1, 2023 the CRA has applied the residential property flipping rule. A home owned for less than 365 consecutive days before it is sold is a flipped property. The profit is deemed business income, so it is fully taxable and does not get the principal residence exemption or the 50 percent capital gains inclusion rate. A loss on a flipped property is deemed to be nil.

The rule does not apply where the sale can reasonably be considered to happen because of one of these life events or in anticipation of one:

• the death of the seller or a related person
• a related person joining the seller’s household or the seller joining theirs
• the breakdown of a marriage or common-law partnership, after living separate and apart for at least 90 days
• a threat to the personal safety of the seller or a related person
• a serious disability or illness of the seller or a related person
• an eligible relocation of the seller or their spouse for work or full-time post-secondary study
• the involuntary termination of employment of the seller or their spouse
• the seller’s insolvency
• the destruction or expropriation of the property

Owners selling soon after a separation will find more on timing in our guide to selling a home after separation in Toronto.

Selling a second property: how the capital gain is worked out

A rental condo, a former home you moved out of or a cottage that was not designated is taxed as a capital gain. The CRA defines the pieces this way:

• Proceeds of disposition: usually the amount you received or will receive for the property.
• Adjusted cost base: usually the cost of the property plus expenses to acquire it, such as commissions and legal fees, plus capital expenditures such as additions and improvements.
• Outlays and expenses: amounts incurred to sell, including fixing-up expenses, commissions, legal fees and advertising costs.

A capital gain is the amount by which the proceeds exceed the adjusted cost base plus the outlays and expenses. Here is an illustration with round numbers, not a real client.

Step	Amount
Purchase price of a rental condo	$500,000
Legal fees and other costs of buying	$8,000
Improvements made while owned	$20,000
Adjusted cost base	$528,000
Sale price	$700,000
Commission, legal fees and other selling costs	$30,000
Capital gain	$142,000
Taxable portion at a 50 percent inclusion rate	$71,000

The CRA has the taxable portion reported on line 12700 of the return. Keep receipts for improvements, because they raise the adjusted cost base and lower the gain. The Toronto downsizing costs post sets out the selling costs that feed into the outlays line.

HST on a house sale

Most resale homes carry no GST/HST. The CRA lists most sales of previously occupied residential housing as exempt, along with certain sales of real property by individuals.

The exception is new or rebuilt housing. The CRA treats sales of newly constructed or substantially renovated residential property as taxable. It gives the example that you are a builder if you purchased the housing with the intention to substantially renovate and resell it. If you gutted and rebuilt a house before selling, ask your accountant whether the sale is taxable before you set a price.

Land transfer tax is the buyer’s cost

Sellers sometimes budget for land transfer tax they will never pay. Ontario says land transfer tax is paid by the person acquiring the land and is payable when the transfer is registered. In Toronto the buyer also pays the City’s municipal land transfer tax, which applies to purchases of property in the City of Toronto on top of the provincial tax.

It matters to you as a seller in one way. If you are buying your next home in Toronto, you pay both taxes on that purchase. Our post on land transfer tax in Toronto explains the brackets and the land transfer tax calculator runs the figures for any price.

If the seller lives outside Canada

A non-resident seller has an extra step. The CRA says the seller must notify it within 10 days of the sale, usually with Form T2062, along with payment or acceptable security for the tax. Once that is in place the CRA issues a certificate of compliance, Form T2068.

Without a certificate, the buyer is entitled to withhold 25% of the proceeds (50% on certain types of property) and may become liable for the seller’s tax. That is why buyers’ lawyers ask early about residency. Raise it with your lawyer when you list, not on closing day.

What to do before you sell

1. List every property you have owned in the family while you owned this one, with the years.
2. Find the purchase documents and receipts for improvements.
3. Confirm the date you took ownership if it was less than a year ago.
4. Tell your lawyer if any owner on title is not a resident of Canada.
5. Book a meeting with your accountant before the sale firms up, not after.

For an estate home the rules shift again. Our post on selling a parent’s house after death in Ontario covers the final return and the estate’s filings. Our sellers’ guide covers pricing, preparation and the offer process and a free home valuation gives you a starting number. If you are planning a sale in Toronto and want to talk through timing, contact us.