Selling a rental property can trigger a significant tax bill, and the decisions that shape it are often made before the property is listed. This checklist explains how capital gains work on an investment property in Ontario and what to prepare with your accountant before you sell.
How capital gains are calculated
Your capital gain is the sale price minus your selling costs and your adjusted cost base (ACB). The ACB is generally what you paid for the property plus purchase costs such as land transfer tax and legal fees, plus the cost of capital improvements over the years.
In Canada, half of a capital gain is included in your taxable income. A proposed increase to the inclusion rate was cancelled in March 2025, so the inclusion rate remains 50%.
Keep records of capital improvements
Capital improvements increase your ACB, which reduces your gain. Examples include a new roof, a kitchen renovation, new windows or adding a unit. Routine repairs and maintenance are different: they are usually deducted against rental income in the year you pay them. Gather invoices now, not the week before closing.
Selling costs reduce the gain
Real estate commission, legal fees and other costs of selling are subtracted from the sale price when calculating the gain. Keep every invoice.
Watch for recapture
If you claimed capital cost allowance (depreciation) on the building in past years, some or all of it may be "recaptured" when you sell for more than the building's depreciated value. Recapture is taxed as regular income, not as a capital gain, so it can be a larger tax hit than owners expect. Your accountant can tell you how much CCA you have claimed and what recapture could look like.
Did you ever live in the property?
If the property was your home for part of the time you owned it, part of the gain may be sheltered by the principal residence exemption. Changes in use, such as moving out and renting the home, or moving into a former rental, have their own rules and elections. If this applies to you, get advice before you sell.
Timing and planning
- Choose the closing date with taxes in mind. Closing in January rather than December moves the gain into the next tax year, which can help if your income will be lower.
- Consider your other income. A large gain on top of a strong year of employment income can push you into a higher bracket.
- Set money aside. Tax on the gain is due when you file. Don't spend the proceeds before you know what you'll owe.
- Tenants. If the property is tenanted, Ontario's rules on notice and possession affect your timeline. Plan whether you will sell with the tenant in place or vacant.
Non-resident sellers
If you're not a resident of Canada for tax purposes, the buyer's lawyer will usually hold back part of the sale price until you obtain a clearance certificate from the CRA. Start this process early.
How I help investors sell
I prepare a pricing analysis that compares your property with recent sales, including whether it's likely to sell better tenanted or vacant. My background in finance means I'll walk through the numbers with you, from net proceeds to the timing of your closing date, so you and your accountant can plan the tax side with real figures.
This article is general information, not tax advice. Speak with a qualified tax professional about your situation.
Common questions
What is the capital gains inclusion rate in 2026?
It remains 50%. A proposed increase was cancelled in March 2025.
Do renovations reduce capital gains tax?
Capital improvements, such as a new roof or kitchen, increase your adjusted cost base and reduce the gain. Routine repairs usually don't.
Is it better to sell a rental with the tenant in place?
It depends on the property and the likely buyer. Investor buyers may prefer a tenant; owner-occupiers usually want vacant possession.
Alexey Kopeykin, Sales Representative, Zolo Realty Brokerage Inc. Published October 2026. General information, not legal or tax advice; confirm details for your situation.