Mistakes, Disputes and Official Sources
Tax when you sell a home in Canada: principal residence, flipping rules and BC's flipping tax
When the sale of a Canadian home is tax-free, how to report it, the federal 12-month flipping rule and its life-event exceptions, BC's home flipping tax and non-resident withholding.
If the home you sell was your principal residence for every year you owned it, the gain is normally exempt from tax, but you must still report the sale and designate the property on your income tax return for the year of sale. A home that was a rental or a second property for some years is partly taxable as a capital gain. Since 1 January 2023, a home you owned for less than 12 months is presumed to be a flip: the profit is taxed as business income and the principal residence exemption is denied, unless a life event such as a death, a new job, a separation or the birth of a child explains the sale. In BC, a separate provincial home flipping tax has applied since 1 January 2025 to sales within 730 days. Non-resident sellers also face section 116 withholding.
This guide is part of Mistakes, Disputes and Official Sources. It is general information; see an accountant for your situation.
The principal residence exemption
You can designate one property per family unit per year as your principal residence if you, your spouse or common-law partner, or your child ordinarily lived in it. The exempt part of the gain is:
Gain x (1 + number of years designated) / number of years owned
The "plus one" means that someone who owned two homes in the same year, as often happens when moving, does not lose a year.
Example (illustrative). You bought a house in 2016 for $500,000 and sell it in 2026 for $900,000. Commission and legal fees were $42,000, so the gain is $900,000 - $500,000 - $42,000 = $358,000. You lived there for all 11 calendar years of ownership: exempt fraction (1 + 11) / 11, capped at 1, so the gain is fully exempt.
Now suppose you also owned a cottage and designated the cottage, not the house, for 2016 to 2019 (four years) because its gain per year was larger, leaving seven designated years for the house. Exempt fraction = (1 + 7) / 11 = 8/11. Taxable gain = $358,000 x 3/11 = $97,636. At the 50% inclusion rate, $48,818 is added to income. (A proposed increase to the inclusion rate was cancelled in 2025.)
Reporting. Report the sale on Schedule 3 of your T1 return and complete Form T2091(IND) if you designate the property. If you forget, you can amend the return, but penalties can apply for late designation.
The federal residential property flipping rule
| Point | Rule |
|---|---|
| In force | Sales on or after 1 January 2023 |
| Property covered | Residential property in Canada, including a right to acquire one (such as a presale assignment) |
| Holding period | Owned for less than 365 consecutive days |
| Result | Profit is business income, fully taxable; principal residence exemption denied; a loss is nil |
| Exceptions | Death of the taxpayer or a related person; a related person joining the household; breakdown of a marriage or common-law partnership; threat to personal safety; serious illness or disability; a work relocation (moving at least 40 km closer to a new workplace); involuntary termination of employment; insolvency; destruction or expropriation of the home |
Example (illustrative). Bought in February 2026 for $650,000; sold in December 2026 for $700,000 with $28,000 of selling costs. Profit $22,000. With no life event, the full $22,000 is business income. If the seller moved for a new job more than 40 km away, the rule does not apply, and the normal principal residence rules decide the tax.
Even outside the 12-month rule, the CRA can treat repeated quick sales as a business.
BC home flipping tax
| Point | Rule |
|---|---|
| In force | Sales on or after 1 January 2025 |
| Rate | 20% of net taxable income if sold within 365 days; declining to 0% between 365 and 730 days |
| Primary residence deduction | Up to $20,000 if it was your primary residence and you held it at least 365 days |
| Exemptions | Several, including life events similar to the federal list; some must be claimed by filing |
| Return | Within 90 days of the sale if you are taxable or need to file for an exemption |
The BC tax is separate from federal income tax, so a quick BC sale can be caught by both.
Non-resident sellers
If you are not a resident of Canada for tax purposes when you sell:
- Notify the CRA and apply for a certificate of compliance under section 116, ideally before or within the deadline after the sale.
- Without the certificate by closing, the buyer's lawyer holds back 25% of the gross price.
- You file a Canadian return for the year of sale; the principal residence exemption may still cover years you were resident, under the rules.
On a $800,000 sale, $200,000 would be held back until the CRA issues the certificate.
Selling costs that reduce the taxable gain
Where the gain is taxable, you can deduct outlays and expenses of disposition: commission and GST/HST on it, legal fees, and advertising. The original purchase costs, such as land transfer tax and legal fees on purchase, are added to the cost base. Keep the statements of adjustments from both the purchase and the sale.
Checklist
- How many calendar years did you own the home, and in how many did you ordinarily live there?
- Did you or your spouse designate another property for any of those years?
- Did you own it for less than 365 days? If so, which life event, if any, applies, and what proof do you have?
- In BC, was the holding period under 730 days?
- Are you a non-resident? Has the section 116 certificate been requested?
- Have you kept the purchase and sale statements and commission invoices?
Frequently asked questions
Do I pay tax when I sell my house in Canada?
Not usually, if it was your principal residence for every year you owned it. You still report the sale on your return.
What if I rented out the basement?
Renting part of your home usually does not change its status if the rental is small and you made no structural changes, and you did not claim capital cost allowance. Ask an accountant if the rented part is significant.
Does the flipping rule apply to a presale condo assignment?
Yes. Assignments of a right to acquire residential property are covered, and assignment profits are generally business income.
Can I designate my cottage instead of my city home?
Yes, for years when you ordinarily lived there, choosing the property with the larger gain per year. Only one property per family unit per year.
Sources
- Canada Revenue Agency — principal residence, residential property flipping rule, section 116
- BC home flipping tax — rates, deductions and returns
- Justice Laws Website — Income Tax Act
- Revenu Québec — provincial return in Quebec
