If you sell your own home, the gain is normally tax free. That is the principal residence exemption, and it is one of the most valuable provisions in Canadian tax law. It is also more conditional than most people think.
How the arithmetic works
A capital gain is your proceeds less your adjusted cost base and your costs of selling. Fifty per cent of a gain is included in income and taxed at your marginal rate. The proposed increase to two thirds was cancelled in March 2025, so the inclusion rate remains fifty per cent.
Your adjusted cost base is the purchase price plus land transfer tax, legal fees on the purchase, and capital improvements. It does not include repairs or maintenance. On a property held for twenty years, that distinction is worth real money, which is why the receipts matter.
The exemption
One property per family unit per year. You and your spouse designate a single principal residence for any given year.
You must have ordinarily inhabited it. Not necessarily year round, and not necessarily as your only home, but genuinely lived in.
You must report the sale. Since 2016, every disposition of a principal residence must be reported on your return even when the whole gain is exempt. Failing to report can cost the exemption and carries penalties.
A cottage as well as a house. Both can be principal residences in different years, and the designation is a calculation worth doing before you sell either.
Renting part of your home. A basement apartment can make part of the property a rental, and part of the gain taxable. Claiming capital cost allowance on that portion is the trigger that usually causes it.
A property that changed use. Moving out and renting your home is a deemed disposition at fair market value unless you file a s.45(2) election.
Since 2023, residential property held for less than 365 days is generally treated as business income rather than a capital gain, with no principal residence exemption and one hundred per cent included. There are exceptions for genuine life events such as death, separation, new employment, or disability. If you are selling within a year of buying, this is a conversation to have with an accountant before you list.
I am not an accountant and this is an orientation rather than advice. The inclusion rate and reporting rules were checked in July 2026. Anything involving a second property, a rental portion, or a change of use should go to a CPA before you sign a listing agreement, not after you close.