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Capital Gains Tax When Selling a Rental Property in Canada

How to calculate capital gains tax on a Canadian investment property sale — including ACB, the 50% inclusion rate, recaptured CCA, and estimated federal + provincial tax owing.

Capital Gains Tax When Selling a Rental Property in Canada

Selling a rental property triggers capital gains tax — sometimes significant. Unlike your principal residence, there is no exemption. Understanding the calculation ahead of time helps you plan the sale strategically.

Adjusted Cost Base (ACB)

Your capital gain is the difference between proceeds of disposition and your Adjusted Cost Base — not just what you paid.

ACB includes:

  • Original purchase price
  • Legal fees and land transfer tax on purchase
  • Capital improvements (not repairs or maintenance)
  • CMHC insurance premium (if applicable on purchase)

Proceeds of disposition includes:

  • Sale price
  • Less: selling costs (commission, legal fees)

Capital Gain = Proceeds of Disposition − ACB

The 50% Inclusion Rate

Canada taxes only 50% of your capital gain as income. The taxable portion is added to your income for the year and taxed at your marginal rate.

Example:

  • Capital gain: $200,000
  • Taxable portion (50%): $100,000
  • At a 45% marginal rate: $45,000 in tax

Note: The 2024 federal budget proposed increasing the inclusion rate to 2/3 for gains above $250,000. Consult a tax advisor for the current status of this change.

Recaptured CCA: The Hidden Tax

If you claimed Capital Cost Allowance (CCA/depreciation) on the property, the CRA requires recapture on sale. Recaptured CCA is taxed at your full marginal rate — not at the 50% capital gains rate.

This is a significant consideration. A landlord who claimed $50,000 in CCA over 10 years may owe $20,000+ in recapture tax at sale — separate from the capital gains tax.

This is why many tax advisors recommend not claiming CCA unless you're in a high-income year and have a specific tax strategy.

Principal Residence Conversion

If you lived in the property before renting it, you may be able to designate some years as principal residence years to reduce the taxable gain. This is complex and time-sensitive — consult a tax professional.

Planning Strategies

  • Installment sales — Spreading proceeds over two tax years
  • Capital loss harvesting — Triggering losses in an investment portfolio in the same year
  • RRSP room — Using a large RRSP contribution to offset income in the year of sale
  • Holding period — There is no additional benefit in Canada to holding for a specific number of years (unlike US long-term capital gains rates)

Try the Calculator

→ Capital Gains on Rental Sale Calculator

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