Real Estate

Buying a home is the largest single financial decision most Canadians make. The tax and financing rules around it are full of quiet defaults — knowing them changes outcomes substantially.

Principal residence exemption

The single biggest tax-favoured asset most Canadians will ever own is their principal residence. Capital gains on the sale of a property that has been your principal residence for every year you owned it are fully exempt from tax — but you must designate the property each year on your return.

You can only designate one property per family unit per year. A cottage or second home owned by the same family unit is not also exempt for those years.

Land transfer tax

When you buy a home, most provinces (and Toronto and the City of Toronto separately) charge a land transfer tax calculated as a percentage of the purchase price. The amount varies materially:

  • Ontario — sliding 0.5%–2.5%, with an extra municipal LTT in Toronto. First-time buyers receive a rebate up to $4,000 (province) and $4,475 (Toronto).
  • British Columbia — Property Transfer Tax of 1%–5% with first-time buyer exemptions up to certain price thresholds.
  • Quebec — “welcome tax” (taxe de bienvenue) at the municipal level, ~0.5%–3%.
  • Alberta and Saskatchewan — no land transfer tax; instead a small registration fee.

Mortgages — the Canadian convention

Two facts worth knowing if you are calculating mortgage payments:

  • Canadian mortgage rates are compounded semi-annually but paid monthly. The effective monthly rate is not simply the annual rate divided by twelve.
  • A 25- or 30-year amortisation is normal; the term (the period of a single rate agreement, typically 5 years) is separate from the amortisation period.

Our Loan & Mortgage Calculator handles the semi-annual convention correctly.

Rental property

If you own a property that earns rental income, the after-expense rental profit is fully taxable as ordinary income. Allowable expenses include mortgage interest (but not principal), property tax, insurance, repairs, and a portion of utilities. Capital cost allowance (CCA) is optional and worth thinking carefully about — claiming CCA reduces current-year tax but creates recapture on sale.

Change-in-use rules

If you convert a principal residence to a rental property — or vice versa — the Canadian Income Tax Act generally deems a disposition at fair market value at the date of conversion. There is an election (subsection 45(2) / 45(3)) that can postpone the deemed disposition; it is worth understanding before making the change.

Revised: