Taxes: As the saying goes, they’re the only other thing sure in life other than death. When it comes to selling a home in Canada, the taxes you need to pay vary depending on your citizenship status and the home itself.
How Much Do You Pay in Tax When Selling Your Home?
If you’re a Canadian citizen who resides in Canada and you’re selling your primary residence, then you do not have to pay any tax on the sale of your home. There are a few exceptions (discussed below), but for the most part, you will not be taxed on the sale of your home as long as you meet the aforementioned criteria.This has allowed Canadians who have held on to their properties and sold recently to enjoy huge tax-free gains. The type of home and its location don’t matter—detached to condominium from Vancouver to Montreal—the sale of the home is typically not taxed.
However, there are a few reasons you may pay tax on the sale of your home in Canada.
GST/HST
If you’re selling a home that has been recently constructed or significantly renovated, you may be required to pay GST or HST on the sale. However, if the property was your primary residence, you may be eligible for a rebate. In order to qualify, you must file a GST/HST New Housing Rebate Application with the Canada Revenue Agency (CRA) within two years of the sale date.Capital Gains Tax
Capital gains tax is applied to the profit made from the sale of an asset, such as real estate, stocks, or bonds. Depending on how long you've held this asset, the capital gains made when selling could be quite significant—especially when it comes to real estate.
While principal residences are excluded from this tax, secondary (and so forth), vacation, and rental properties are not.
If you’re flipping a house, then it’s likely you’ll have to pay capital gains tax, unless you live in the property for at least a year. In 2022, a Residential Flipped Property Rule was enacted in order to prevent house flippers from claiming the sale of their flipped property as a capital gain and in some cases also claiming the principal residency exception.
Under this rule, a gain from the disposition of a residential property that has been owned for less than 365 days is considered fully taxable as a business income. Any gains from such dispositions are not eligible for the 50 per-cent capital gains inclusion rate or the principal residence exemption.
Any expenses you incurred in order to make a profit would be tax deductible, but losses cannot be claimed as a business loss.
Primary Residence Changes
As mentioned, you will not have to pay taxes on the sale of a home that has always been your primary residence. However, if there were years during your homeownership where the home was not your primary residence, or the nature of the residence was changed (e.g. going from a principal residence to rental property), then you will likely have to pay some form of tax when selling the home.Deemed Disposition
In cases of "deemed disposition", wherein the owner of the property dies or gives the property to a third party, the CRA will tax the capital gain on the property by comparing the fair market value to the price the home was purchased for. In the eyes of the CRA, the disposition of the property is deemed a sale, even if is just moving hands from, say, one family member to another.Deemed disposition also occurs when you change the nature of your residence. For example, changing your principal residence to a rental or business property. When your property goes from being personal use to income-producing, the deemed disposition can result in a capital gain.
Property Tax
Because property taxes are paid on a pro-rated basis, you will have to pay part of the property tax for the year of the sale.Non-Canadian Residents
Tax implications for non-Canadian residents or Canadian residents residing outside of Canada are a bit different.Firstly, you will need to apply for a Clearance Certificate. You will also need to file a Section 216 return to confirm that you have reported your rental income and paid your taxes (if the property has been rented out).
A non-resident withholding tax of 25% of the home’s gross sales price will be applied until you have completed and paid your income tax return. (Note: this tax increases to 50% if the property is a rental property.)
Finally, you will need to submit a Canadian tax return for the year of the sale.
Taxes can be a confusing and complicated matter—and it’s one that you don’t want to get wrong! Always be sure to get assistance from tax professionals, legal experts, and experienced agents in order to ensure you know what taxes you will have to pay when it comes time to sell your home.
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