Understanding the Taxes on Selling a Home in Ontario
Investing in real estate remains one of the most effective ways to build wealth and prepare for retirement. Over the past few decades, property values in Ontario have seen significant appreciation. According to the Canadian Real Estate Association (CREA), residential properties in the province have averaged an annual return of 7 to 10 percent. However, before selling an investment property, it’s crucial to understand the tax implications and ask: How much tax will you owe when selling a house in Ontario?
Do You Pay Taxes When Selling a Home in Ontario?
The taxes owed on the sale of a home depend on how the property was used. If it has been your principal residence for the entire time you’ve owned it, you are exempt from paying taxes on the sale due to the Principal Residence Exemption. However, if it is a second home, rental property, or business asset, capital gains tax may apply.
In 2025, tax changes could affect those with large capital gains. If your net capital gains exceed $250,000 in a year, 66.67 percent of the profit is now taxable—an increase from the previous 50 percent. This adjustment means higher-value properties and investment assets could result in a greater taxable amount.
How Much Tax Is Owed When Selling a House in Ontario?
One of the advantages of the Ontario real estate market is that primary residences are exempt from capital gains tax. This means that any profit made from selling your main home is not taxed. Many homeowners who have held onto their properties over the past two decades have benefited from substantial, tax-free appreciation.
There are a few exceptions to this rule, but in general, the ability to sell a principal residence without paying capital gains tax makes homeownership in Ontario particularly attractive.
Taxes on a Real Estate Sale in Ontario
If taxes do apply to the sale of your home, they may include the following:
Ontario Harmonized Sales Tax (HST) If you are selling a newly built or significantly renovated home in Ontario, you may be required to charge HST on the sale. However, if the home was your primary residence, you might qualify for a rebate on some or all of the HST paid. The rebate amount depends on the sale price and how much HST was paid.
To determine eligibility, sellers must submit an HST New Housing Rebate Application to the Canada Revenue Agency (CRA) within two years of the sale date. Even for principal residences, some HST may still apply.
Capital Gains Tax
Capital gains tax does not apply to the sale of a principal residence, but vacation homes, rental properties, and investment properties in Ontario are subject to this tax. While a partial capital gains exemption may be available, the calculations can be complex.
For individuals who engage in house flipping—buying a property, holding it for a short period, and reselling for profit—capital gains tax is likely unless the home is occupied for at least a year. The Residential Flipped Property Rule, implemented in 2022, ensures that profits from selling a property owned for less than 365 days are fully taxable as business income. This includes pre-construction condo sales if the purchase rights are sold within a year.
Expenses related to the sale may be tax-deductible, but losses cannot be claimed as business losses. However, exceptions may be granted for sales due to significant life events, such as job relocation, disability, or family changes. The CRA has increased scrutiny in areas with high speculative activity, so proper documentation is essential when filing taxes on real estate sales.
During an audit, the CRA may request documents such as:
- Purchase and sale agreements
- Mortgage contracts
- Property appraisals
- Subdivision plans (if applicable)
- Zoning applications
- Real estate listing agreements
- Legal statements of adjustments
Property Tax Adjustments in Ontario
Property taxes in Ontario are typically prorated at the time of sale. Sellers are responsible for property taxes up until the closing date, while buyers take over payments for the remainder of the year. If the seller has already paid the full year’s property taxes, the buyer reimburses their portion. These adjustments are handled during the closing process by a real estate lawyer or notary.
Taxes for Non-Resident Sellers in Ontario
The tax requirements differ for non-Canadian residents selling a home in Ontario. Key points include:
- Applying for a Clearance Certificate
- A 25 percent withholding tax on the gross sales price (or 66.67 percent for rental properties)
- Filing a Section 216 return if the property was rented
- Submitting a Canadian tax return for the sale year
Get Professional Guidance When Selling Your Home in Ontario
Beyond taxes, sellers must also account for additional real estate-related costs, including legal fees, mortgage discharge fees, and moving expenses. To navigate these complexities, it’s important to work with knowledgeable real estate agents, legal professionals, and tax experts.
While real estate remains a powerful tool for wealth creation, being informed about tax implications ensures a smoother transaction and fewer surprises.
Reach out to us anytime if you need advice. Having a trusted accountant is highly suggested to anyone looking to get into buying homes as investment property.