Capital Gains Tax on Rental Property in Canada: What Happens After You Sell?
You sold a rental condo. The mortgage is paid off, the fees are covered, and you can see what’s left in your bank account. Is that the amount the tax calculation starts from?
Get personal tax help after selling a rental propertyThere are two ways to look at the sale. One tells you how much cash you took home. The other compares what the property sold for with what it cost you, allowing for eligible costs. The increase you work out that way is called a capital gain. It isn’t the amount of tax due.
A simple example
Two ways to look at the same sale
- $150,000
Cash left from the sale
$420,000 sale price − $20,000 selling costs − $250,000 mortgage payout.
- $40,000
Capital gain in this example
$420,000 sale price − $20,000 selling costs − $360,000 (purchase price plus eligible costs).
The example compares cash after closing with the gain. It does not calculate the tax owed.
Why the cash you keep differs from the capital gain
Say you sold a condo you rented out for years for $420,000. Selling costs were $20,000 and the outstanding mortgage was $250,000. That leaves $150,000 from the sale in this simplified closing example.
The capital gain starts with the same $420,000 sale price. For this example, you paid $350,000 for the condo and have another $10,000 in costs that qualify as additions to its cost for tax purposes. After the $20,000 in selling costs, the capital gain is $40,000. Paying off the mortgage changes the cash you receive. The balance of the loan doesn't enter the calculation of the capital gain.
The $40,000 is the gain in this example. The amount of tax, if any, depends on your own return and the property's history.
If you claimed CCA while renting out the property
An earlier rental return might show a deduction called capital cost allowance, or CCA. It lets you deduct the cost of some property, such as the rental building, over time.
If you claimed CCA, a sale can bring some or all of that earlier deduction back into your income. The CRA calls this recapture. It can arise alongside a capital gain, which is why the purchase and sale papers alone may leave part of the story out. If you're unsure what you claimed, your earlier rental returns are a good place to start.
Two separate questions
Why the same sale can affect two amounts
- Capital gain
Did the property sell for more than its cost for tax purposes?
Look at the sale price, adjusted cost and eligible selling expenses.
- CCA recapture
Does any past CCA come back into income?
Look at the sale and the earlier deductions for the property.
A capital gain and CCA recapture are checked separately. Both can arise from one sale.
Did you live there before or after renting it out?
Maybe it was your home first. You moved out, rented it for a few years, then sold it. The dates you lived there and the dates you rented it matter. A change in how the property was used may have tax consequences of its own, even before the eventual sale.
Tell your accountant the order of events and whether you rented the entire property or part of it. That helps determine whether the principal residence rules may apply and whether earlier records need a closer look.
The paperwork that helps explain the sale
Start with the documents from when you bought the property and the closing statement from when you sold it. If you made substantial improvements, keep the invoices that describe what changed. If you claimed CCA or aren't sure, bring the earlier rental records you have.
We can review the gain and possible recapture, ask about anything the records don't explain and help report the sale on your personal return. If you also collected rent in the year you sold, we can review that part of the return with you.
Related article: How rental income and expenses fit into your return
Sold a rental property? Let's look at the sale.
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Official Canadian sources (4)
These CRA and Government of Canada pages are the primary sources used to check the tax information in this article.
This article is general information, not personal tax advice. Your situation may differ. For advice specific to you, book a free call.