Capital Gains Tax on Toronto Condo Sale: 2026 Guide

Principal residence exemption

If the condo was your principal residence for every year you owned it, the capital gain on sale is fully exempt from income tax under the Principal Residence Exemption (PRE). This is the most important tax break in Canadian real estate.

To qualify as principal residence in a given year, you (or your spouse/common-law partner / minor child) must have ordinarily inhabited the unit for that year. Briefly or seasonally counts; it doesn't require year-round occupation.

Each family unit (spousal couple + minor children) can designate only ONE principal residence per year. If you own multiple properties and lived in each at some point, you choose which to designate which year.

The PRE is claimed on Schedule 3 of your T1 return for the year of sale, even when the gain is fully exempt. CRA has required principal-residence reporting since 2016 — failing to report can disqualify the exemption.

When the gain is taxable

The gain is taxable to the extent the property was NOT your principal residence:

• Pure investment property — you never lived there. 100% of the gain is taxable as a capital gain.
• Partial-period principal residence — you lived there some years, rented it some years. The gain is pro-rated based on years of principal-residence designation. CRA's "+1 rule" gives one bonus year of exemption.
• Change-of-use property — if you converted your principal residence to a rental (or vice versa), there's a deemed disposition at fair market value at the change-of-use date. Section 45(2) and 45(3) elections can defer this.

This is a deeply lawyer-and-accountant area. The decisions made years before sale (renting vs. holding, electing vs. not electing) drive the tax outcome at sale.

Calculating the taxable gain

Capital gain = proceeds of disposition (net sale price after commission, legal fees) - adjusted cost base (purchase price + closing costs + capital improvements).

For a pure investment Toronto condo bought at $500K + $20K closing in 2018, sold for $750K with $42K commission + legal in 2026:

• Net proceeds: $750K - $42K = $708K
• Adjusted cost base: $500K + $20K + $15K of capital improvements = $535K
• Capital gain: $708K - $535K = $173K

Under the historical capital gains inclusion rate of 50%, $86,500 is included in taxable income. The taxable portion is then taxed at the seller's marginal rate.

The federal government proposed raising the inclusion rate for individuals to 66.67% on capital gains over $250,000 (2024 federal budget). Implementation has been delayed / contested through 2025; verify the current state with your accountant before filing.

Reporting and remittance

Capital gains are reported on the T1 return for the year of disposition (year of closing, not year of offer acceptance). Form Schedule 3 details the calculation.

For non-resident sellers (Canadian PR or citizen no longer resident in Canada), CRA requires withholding tax on the gross sale proceeds (typically 25%) unless the seller obtains a "Section 116 certificate" pre-clearance from CRA confirming the actual gain. This is a significant process — non-resident sellers should engage a Canadian accountant before listing.

Special situations

Inherited property

The deceased's estate has a deemed disposition at fair market value on death. The heir's adjusted cost base is the FMV at death. Subsequent appreciation is the heir's capital gain on eventual sale.

Divorce / separation

Spousal transfers can occur on a tax-deferred rollover basis under the Income Tax Act's spousal rollover rules. Specific timing matters — a transfer during separation but before formal agreement may have different tax consequences than post-agreement.

Pre-construction assignment

CRA has been increasingly assessing assignment profits as business income (100% inclusion) rather than capital gains (50% inclusion). The characterization depends on intent at time of original purchase, frequency, and circumstances. See our assignment guide.