Real estate transactions in Canada have significant tax implications — and the rules have changed materially in recent years. Whether you’re buying your first home, selling a property, or investing in real estate, here’s what you need to know from a Canadian tax perspective in 2025 and 2026.
1. The Principal Residence Exemption
When you sell a home that was your principal residence for every year you owned it, the capital gain is fully exempt from tax. This is one of the most valuable tax shelters available to Canadians.
To qualify, the property must be:
- A housing unit (house, condo, cottage, mobile home)
- Ordinarily inhabited by you or your family during the year
- Designated as your principal residence on Schedule 3 of your T1
Important: Since 2016, you must report the sale of your principal residence on your tax return, even if the gain is fully exempt. Failure to report can result in penalties and the CRA may deny the exemption.
2. The Anti-Flipping Rules (Effective January 1, 2023)
If you sell a residential property that you owned for less than 365 days, the gain is automatically treated as business income — not a capital gain. This means:
- The principal residence exemption does not apply
- The full gain is taxed at your marginal rate (not the capital gains inclusion rate)
- No 50% or two-thirds inclusion rate benefit
Exceptions exist for life events such as death, disability, divorce, job relocation (more than 40km closer to new workplace), birth of a child, or threat to personal safety. These exceptions are narrow and must be properly documented.
3. Capital Gains on Investment Properties
If you sell a property that was not your principal residence (a rental, a cottage used primarily as an investment, or vacant land), the gain is subject to capital gains tax. For 2026:
- Individuals: The first $250,000 of capital gains is taxed at the 50% inclusion rate. Gains above $250,000 are taxed at the two-thirds inclusion rate.
- Corporations and trusts: All capital gains are taxed at the two-thirds inclusion rate.
4. The First Home Savings Account (FHSA)
The FHSA is one of the best tools available to first-time homebuyers. Contributions are tax-deductible (like an RRSP) and qualifying withdrawals for a first home purchase are tax-free (like a TFSA). You get both benefits in one account.
- Annual contribution limit: $8,000
- Lifetime contribution limit: $40,000
- Unused annual room carries forward once (maximum $16,000 in a single year)
- Must be a first-time homebuyer to contribute (no home owned in current year or prior 4 years)
Read our full guide to the FHSA: The First Home Savings Account: A Complete Guide.
5. The Home Buyers’ Plan (HBP)
First-time buyers can withdraw up to $60,000 from their RRSP tax-free to fund a home purchase (increased from $35,000 in 2024). The amount must be repaid to the RRSP over 15 years. If not repaid on schedule, the outstanding amount is added to your income each year.
The HBP and FHSA can be used together for the same purchase, giving first-time buyers access to up to $100,000 in tax-sheltered savings.
6. HST on New Builds
Newly constructed homes are subject to HST in Ontario (13%). However, purchasers of new homes priced under $450,000 may qualify for the GST/HST New Housing Rebate, which reduces the effective HST rate. For homes over $450,000, only a partial rebate is available.
If you purchase a new home as a rental property, the rebate rules differ significantly — there is a separate New Residential Rental Property Rebate available.
7. The Home Office Deduction for Remote Workers
If you work from home, a portion of your housing costs may be deductible as employment expenses (T777) or as business expenses (T2125 for self-employed). Eligible expenses include rent, mortgage interest, utilities, and internet — prorated by your workspace percentage.
Buying, selling, or investing in property in the Ottawa area? Contact CMP Accounting to make sure the tax side is handled correctly.