Calculating Capital Gains Tax on Real Estate in Ontario
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Reviewed by Calculator Editorial Team
When you sell a property in Ontario, you may owe capital gains tax on the profit you make. This guide explains how to calculate your capital gains tax, including the different tax rates, deductions, and exemptions that apply.
How Capital Gains Tax Works in Ontario
Capital gains tax is a tax on the profit you make when you sell an asset, such as real estate, for more than you paid for it. In Ontario, capital gains tax is calculated based on the difference between the sale price and the cost basis of the property.
The cost basis includes the purchase price, plus any capital improvements you've made to the property. It also includes any capital losses you've carried forward from previous years.
If you sell your principal residence, you may be eligible for the principal residence exemption, which allows you to exclude up to $300,000 of your capital gain from tax (as of 2023).
Calculating Capital Gains
The first step in calculating capital gains tax is to determine your capital gain or loss. This is done by subtracting the cost basis of the property from the sale price.
The cost basis includes:
- The purchase price of the property
- Any capital improvements you've made to the property
- Any capital losses you've carried forward from previous years
If you have a capital loss, you can deduct it from your capital gains in the same year or carry it forward to future years.
Capital Gains Tax Rates in Ontario
In Ontario, capital gains tax is calculated based on your Ontario tax bracket. The tax rates for capital gains are the same as your Ontario income tax rates.
| Taxable Income | Capital Gains Tax Rate |
|---|---|
| $0 - $45,142 | 5.05% |
| $45,143 - $90,287 | 9.15% |
| $90,288 - $150,000 | 11.16% |
| $150,001 - $220,000 | 12.16% |
| Over $220,000 | 13.16% |
If you're a high-income earner, you may be subject to the Ontario high-income tax rate of 13.16%.
Deductions and Exemptions
There are several deductions and exemptions that can help reduce your capital gains tax liability.
Principal Residence Exemption
If you sell your principal residence, you may be eligible for the principal residence exemption, which allows you to exclude up to $300,000 of your capital gain from tax (as of 2023).
Capital Loss Carryforward
If you have a capital loss, you can deduct it from your capital gains in the same year or carry it forward to future years. This can help reduce your tax liability or create a tax refund.
Capital Improvements
Any capital improvements you've made to the property, such as renovations or repairs, can be added to your cost basis. This can help reduce your capital gain and lower your tax liability.
Example Calculation
Let's look at an example to see how capital gains tax is calculated in Ontario.
Suppose you bought a property in 2020 for $300,000 and sold it in 2023 for $500,000. You made some capital improvements to the property, including a new roof and kitchen renovation, which cost $50,000. Your Ontario taxable income for 2023 is $100,000.
In this example, your capital gains tax would be $16,740, based on your Ontario tax bracket of 11.16%.