In Canada, the amount of tax you pay when selling your home depends on several factors, such as whether the property qualifies as your principal residence and the nature of the sale. Here’s an overview:
Principal Residence Exemption
If the home you are selling qualifies as your principal residence for all the years you owned it, you likely won’t have to pay capital gains tax on the profit from the sale. To qualify:
You must have ordinarily lived in the home during the time you owned it.
Partial Principal Residence Exemption
If the home was your principal residence for only some of the years you owned it (e.g., it was rented out part of the time), The taxable portion is calculated based on the number of years it was not your principal residence.
Capital Gains Tax
If the property doesn’t qualify as your principal residence (e.g., a second home, vacation property, or investment property), you will owe capital gains tax on 50% of the profit. The taxable portion is added to your income for the year and taxed at your marginal tax rate.
Example:
Sale price: $600,000
Original purchase price: $400,000
Capital gain: $200,000Taxable portion (50%): $100,000
If your marginal tax rate is 30%, the tax owed would be $30,000.
Other Considerations
Property flipping: If you sell a home soon after purchasing it, the Canada Revenue Agency (CRA) may classify the profit as business income, which is fully taxable.
GST/HST: Most residential sales are exempt from GST/HST. However, newly built or substantially renovated homes may be subject to GST/HST.
Reporting to the CRA
As of 2016, all sales of principal residences must be reported on your tax return to claim the exemption. Failure to report may result in penalties.
If you’re unsure about your specific situation, consult a tax professional or accountant for personalized advice.
