How is capital gains tax calculated on a second property?

Sell a second property in Canada and half the gain is taxable. Subtract the adjusted cost base and selling costs from the price, then add 50% to income.

Sell a property in Canada that is not your principal residence and the tax lands on the gain, not on the price. The Canada Revenue Agency takes the proceeds of disposition, subtracts the adjusted cost base, subtracts what it cost you to sell, and taxes half of what is left. The CRA puts it plainly: "Fifty percent of the capital gain would be taxable" (Canada Revenue Agency).

The formula is short. The money is in the three numbers you feed it, and in whether any of the years you owned the place can be sheltered by the principal residence exemption.

How do you work out the gain?

One line does it. "To calculate your capital gain or loss, subtract the total of your property's ACB, and any outlays and expenses incurred to sell your property, from the proceeds of disposition" (Canada Revenue Agency).

Say a rental condo was bought for 500,000 dollars with 6,000 dollars of legal and acquisition costs on the way in, and sells years later for 700,000 dollars with 25,000 dollars of commission and legal fees on the way out.

• Proceeds of disposition: 700,000 dollars
• Adjusted cost base: 506,000 dollars
• Outlays and expenses of selling: 25,000 dollars
• Capital gain: 169,000 dollars
• Taxable capital gain: 84,500 dollars

The taxable half does not get a rate of its own. It joins your income for the year and is taxed at your marginal rate. Federal rates for 2026 start at 14 per cent and reach 33 per cent on income above 258,482 dollars, with Ontario rates on top (Canada Revenue Agency). Our net proceeds calculator covers the selling side of that sum before you list.

Is it two thirds now, or still one half?

Still one half. The increase from one half to two thirds proposed in 2024, and then deferred to 1 January 2026, did not go ahead. The Department of Finance records that "the government confirmed in Budget 2025 that it would not proceed with these changes" (Department of Finance Canada).

What can you add to the cost base?

The CRA defines the adjusted cost base as "usually the cost of a property plus any expenses to acquire it, such as commissions and legal fees" (Canada Revenue Agency, Guide T4037).

What cannot go in is routine upkeep. The same guide is blunt about it: "You cannot add current expenses, such as maintenance and repair costs, to the cost base." Painting between tenants is a current expense. Work that is not routine repair is treated differently, and the difference lands straight in the gain, which is why fifteen years of invoices is not an admin chore. Keep every receipt from the day you buy and let your accountant place each one.

Can a second property ever be a principal residence?

For some of the years, yes. Never for a year another property in the household is already using. The rule has stood since 1982: "You can only designate one home as your family's principal residence for each year" (Canada Revenue Agency).

The exemption is a fraction rather than all or nothing. The CRA's technical folio sets it out as A times B divided by C, where A is the gain, B is one plus the number of years the property was your principal residence while you were resident in Canada, and C is the number of years you owned it (Canada Revenue Agency, Income Tax Folio S1-F3-C2).

Two things follow. Every year you assign to the cottage or the rental is a year you cannot assign to the home you live in, so a saving on one becomes a cost on the other. And the one in that numerator is what lets a household sell one home and buy another in the same year without the overlap costing anything.

What if you moved out and rented it?

Changing what a property is used for is a taxable event on its own, even though no money moves. The folio describes the owner as deemed "to have disposed of the property ... at fair market value and reacquired it immediately thereafter" (Canada Revenue Agency, Income Tax Folio S1-F3-C2).

There is an election that softens it. Where a subsection 45(2) election is in force, the property can "qualify as a taxpayer's principal residence for up to four tax years" while it is rented out and you live somewhere else. The price is that you cannot claim capital cost allowance on it while the election stands (Canada Revenue Agency). Which side of that trade is better depends on the rent, the years and the other property, and it is a conversation to have before the tenant moves in rather than after.

What if you owned it for less than a year?

Then it may not be a capital gain at all. The CRA's residential property flipping rule reaches a housing unit in Canada, rental properties included, "owned or held by the taxpayer for less than 365 consecutive days prior to the disposition unless the disposition can reasonably be considered to occur due to, or in anticipation of certain life events" (Canada Revenue Agency, Guide T4037).

Where it applies, the profit is business income rather than a capital gain, so the whole of it is taxed instead of half. The CRA says the rule "was introduced to make sure that profits from the disposition of properties, including rental properties and assignment sales, are taxed as business income" (Canada Revenue Agency). Assignment sales are named in that sentence, which matters in a city with this much preconstruction in it. The life events that carve out an exception are listed by the CRA in the guide above, and wanting out of a deal is not one of them.

How do you report it?

The gain goes on Schedule 3 with the return for the year of the sale. Any year you are designating as principal residence goes on Form T2091(IND) (Canada Revenue Agency).

Reporting is not optional even when the exemption covers the whole gain. The CRA will "only allow the principal residence exemption if you report the disposition and designation of your principal residence on your income tax and benefit return" (Canada Revenue Agency).

Two of the three numbers in this calculation are set years before you sell, by what you paid and what you kept receipts for. The third is the one we work on. Our net proceeds calculator and our selling page cover the transaction side.

This is general information and current as at 3 September 2026, not tax advice. Non residents of Canada are taxed under different rules on a sale here and should take advice before listing.