Capital Gain

The profit when you sell capital property such as a rental for more than its adjusted cost base plus selling costs; one-half is taxable.

A capital gain is the profit when you sell capital property, such as a rental building or a cottage, for more than it cost. The gain is the proceeds of disposition minus the adjusted cost base (ACB) and the outlays and expenses of selling. Gains and losses are reported on Schedule 3 of your return for the year of sale.

The ACB is usually the purchase price plus the costs of acquiring it, plus capital improvements such as additions. Routine repairs and maintenance are not added. Selling costs include commissions, legal fees, transfer taxes and advertising. They reduce the gain, but they cannot be deducted from other income.

Only part of a capital gain is taxed. The inclusion rate is one-half, so half of the gain is added to your income. In 2024 the federal government proposed raising the rate to two-thirds on an individual's gains above $250,000 a year, and on all gains of corporations and most trusts. That change was deferred, then cancelled in March 2025, and the one-half rate remains.

Selling a rental often has more than one part. The building can produce recapture of capital cost allowance, which is fully taxable, plus a capital gain on any amount above its original cost. The land produces only a capital gain or loss. A home owned for less than 365 consecutive days may fall under the flipping rule. That rule treats the profit as fully taxable business income, unless a listed life event applies.

Your principal residence is usually exempt for the years it qualified. A property that was sometimes rented and sometimes lived in needs a careful split. That is a good point to check CRA guidance or speak with a tax professional.

General information only, not legal, tax, or financial advice. Rules change and vary by province; confirm the current details with the relevant authority before you rely on them.