Do You Pay Capital Gains Tax When You Sell Your Home in BC?

You may have heard that you pay tax when you sell a house. For the home you live in, the Canada Revenue Agency (CRA) has a rule that can remove the tax on the increase in value. This guide explains when that rule covers the whole increase, what you must still file, and which situations to discuss with an accountant before you list.

Do you pay tax on the gain when you sell the home you live in?

Usually, no. The CRA's page on the principal residence says: "If the property was solely your principal residence for every year you owned it, you do not have to pay tax on the gain."

A capital gain is the increase the CRA measures when you sell. The CRA's capital gains guide says you have one when you sell a property "for more than the total of its adjusted cost base and the outlays and expenses incurred to sell the property". The adjusted cost base is "usually the cost of a property plus any expenses to acquire it, such as commissions and legal fees". The guide counts additions and improvements in that cost, and leaves out maintenance and repairs. In short, the gain is the sale price, minus what the home cost you, minus the costs of selling.

A principal residence is the CRA's term for a home that you own, that you or your family lived in during the year, and that you name as your principal residence on your tax return. The rule that removes the tax is called the principal residence exemption.

What does the CRA count as a principal residence?

The CRA says a principal residence can be a house, a cottage, a condominium, an apartment, or a trailer, mobile home or houseboat. A property qualifies for a year if it meets all four conditions:

• It is a housing unit.
• You own it alone or jointly with another person.
• You, your current or former spouse or common-law partner (an unmarried partner who meets the CRA's conditions), or any of your children lived in it at some time during the year.
• You designate it as your principal residence.

To designate a property means to name it, on your tax return, as your principal residence for certain years. The CRA says you designate your home when you sell it, so you choose the years on the return for the year of the sale.

One home for each family for each year

For 1982 and later years, the CRA says "You can only designate one home as your family's principal residence for each year." Your family, for this rule, is you, your spouse or common-law partner, and your children, other than a child who was 18 or older or had a spouse or partner during the year. A spouse from whom you were separated for the entire year, under a court order or a written agreement, is left out. For years before 1982, the CRA says more than one housing unit per family can be designated, under a special rule.

Selling and buying in the same year

If you sell one home and buy the next in the same year, you have two homes in one tax year. The CRA's example for this case describes "a special rule (the 'plus 1' rule) that allows a taxpayer to treat both properties as eligible for the principal residence exemption" for that year, although only one may be designated for it. The taxpayer must be resident in Canada during the year the home is purchased. Our post on whether to sell first or buy first covers the order of the two deals.

What must you file even when no tax is owed?

You still report the sale. For 2016 and later tax years, the CRA says it "will only allow the principal residence exemption if you report the disposition and designation of your principal residence on your income tax and benefit return". A disposition is a sale or another transfer of the property.

The CRA names two forms:

• Schedule 3, Capital Gains or Losses, a form that goes with your tax return. You report the sale and designate the property on it.
• Form T2091(IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust). The CRA says to complete only page 1 if the home was your principal residence for all the years you owned it, or for all years except one.

Both go with your return for the year you sell. The capital gains guide says to report a sale "in the calendar year (January to December) that you sell or are considered to have sold the property", so a sale in 2026 belongs on your 2026 return. The CRA's current pages are written for the 2025 tax year. Use the forms for your own year of sale. If you sign the contract in one year and the sale completes in the next, ask your accountant which year applies.

What if you forget to report the sale?

The CRA says that if you forget the designation in the year of the sale, you should ask it to amend, or correct, your return. It "will accept a late designation in certain circumstances, but a penalty may apply". Its page on reporting the sale of your principal residence gives the penalty as the smaller of two amounts: $8,000, or $100 for each complete month from the original due date to the date of your request. Our advice: tell the person who prepares your tax return that you sold your home.

Which situations need an accountant before you list?

The CRA adds a warning. If at any time the property "was not your principal residence, or solely your principal residence, you might not be able to benefit from the principal residence exemption on all or part of the capital gain". Six situations follow. We explain the published rule for each, and an accountant works out what it means for you.

You rented out the whole home for some years

The CRA calls this a change in use. When you change your home to a rental, "you are considered to have sold the property at its fair market value" and to have bought it back at once for the same amount, although you still own it. Fair market value is, in the CRA's guide, usually the highest dollar value you can get for your property in an open and unrestricted market.

The CRA says you do not have to pay tax on any gain that relates to the years the home was your principal residence before the change. You report "the gain that relates to the years your home was not your principal residence".

There is a written choice, which the CRA calls an election. You make it in a signed letter attached to your tax return for the year the use changed. With the election, you are treated as if you had not started to rent the home out. The CRA says you can then designate the home as your principal residence for up to four years while you live elsewhere, if you designate no other property and you are resident in Canada. You cannot claim capital cost allowance while the election applies. Capital cost allowance is a tax deduction for the cost of a building used to earn income, taken over several years. The CRA's folio on the principal residence, its detailed technical document, says a late election may be accepted under certain circumstances.

Tell your accountant which years you rented the home, whether you filed that letter and whether you claimed capital cost allowance. Ask before you list.

You rented out part of the home, such as a basement suite

When part of a home earns income, the CRA says that whether the entire home qualifies "will depend on the circumstances". Its practice is to treat the entire property as a principal residence where all three conditions are met:

• "the income-producing use is secondary to the main use of the property as a residence"
• "there is no structural change to the property"
• "no capital cost allowance (CCA) is claimed on the property"

The folio gives examples of both cases. It says the conditions can be met where an owner "rents one or more rooms in the home". Its examples of a structural change include "the conversion of a portion of a house into a self-contained domestic establishment for earning rental income (a duplex, triplex, etc.)". In plain words, that is a separate home inside the house, made to be rented.

If the three conditions are not all met, the CRA says you may have to split the selling price and the adjusted cost base between the part you lived in and the part you rented. It accepts a split by square metres or by number of rooms, as long as the split is reasonable. You then report the gain on the part used to produce income. An election has also been available for a change in use of part of a property since March 19, 2019.

If your house has a rented suite, ask an accountant which description fits it before you list.

You own a second property, such as a cabin or a rental condo

The rule of one home for each family for each year applies here. A cottage is on the CRA's list of housing types, and the folio says living in a home for a short period in the year can be enough, unless the main reason for owning it is to earn income. If your cabin qualifies, your family has two properties and one designation for each year.

The CRA says that in some situations "you may choose not to designate your home as your principal residence for one or more of those years". That choice affects the tax on both properties. A rental condo is tested against the same four conditions, including the one about living in the home during the year. Have an accountant work this out before you list either property.

Your lot is larger than half a hectare

The CRA says the land your home is on can be part of your principal residence, and that this land is usually limited to half a hectare, which is 1.24 acres. You can count more "if you can show that you need more land to use and enjoy your home". The CRA's example is a minimum lot size, set by a municipality, that is larger than half a hectare.

The folio's test is strict: the extra land must clearly be necessary for the home to function as a residence. Using it for a lifestyle, "such as for keeping pets or for country living", generally does not make it necessary. The CRA gives a farmer whose farm land includes a principal residence two methods of calculation.

This matters for owners of acreages in Mission, Abbotsford, Chilliwack and Langley. Bring your lot size to an accountant before you list.

You lived outside Canada for part of the time

The CRA says the exemption is limited to the tax years in which you were resident in Canada and the property was your principal residence. It adds that a period of non-residence "may reduce the amount of the principal residence exemption or eliminate it", and it tells owners in this position to contact the CRA. Ask an accountant before you list.

The home has more than one owner, or a spouse has died

The CRA's second condition allows ownership "alone or jointly with another person". Where both spouses own the home, the folio says both will generally have a gain on the sale, and the family still has one designation for each year. If another person is a registered owner, such as an adult child, ask an accountant how the four conditions apply to that person.

When an owner dies, the CRA's page on capital gains for someone who died says the person is considered to have sold all their property just before death, unless it is transferred to a spouse or common-law partner or a specific exception applies. Where a principal residence is transferred to the surviving spouse, the CRA says no designation is required in the final return, which is the last tax return filed for the person who died. It asks for a record of the years for which that person could have designated the home. The folio says the surviving spouse can then be treated as having owned the home for the whole period the first spouse owned it.

For a home that passes to other people, the legal representative (the executor) designates it on Schedule 3 and Form T1255. Our post on selling a parent's home after a death covers that sale. Ask an accountant and the estate's lawyer before you list.

The table lists the main rule and the six situations together.

Source: Canada Revenue Agency: the "Principal residence" page, "Reporting the sale of your principal residence", Income Tax Folio S1-F3-C2 and the page on capital gains for someone who died, all read on October 10, 2026.

Which other taxes do people confuse with this one?

Five other taxes apply to homes. Here is what each official page says for a long-time owner who sells the home they live in.

BC property transfer tax

The buyer pays this tax. The Province of BC says you pay it when you "purchase or gain an interest in property that is registered at the Land Title Office", unless you qualify for an exemption. So a downsizer pays it once, on the next home. The rates are 1% of the first $200,000 and 2% from $200,000 to $2,000,000. On a $600,000 purchase, that is 1% × $200,000 = $2,000, plus 2% × $400,000 = $8,000, for a total of $10,000.

Goods and services tax (GST)

A CRA memorandum says "Generally, a sale of a previously occupied residential complex is exempt from the tax." It uses "residential complex" for housing, such as a house or a condominium unit, and it lists instances where a sale is taxable.

The commission is treated separately. The CRA says the services of a real estate agent who is registered for GST are "generally taxable even when the real property in question is exempt", and its rate table gives 5% for BC. Our page on real estate commission in BC has more.

BC home flipping tax

The Province says this tax applies to the profit from selling a property "if you owned the property for less than 730 days". It took effect on January 1, 2025. The same page says "At 730 days, the tax no longer applies." A home you have owned for decades is past that period. The rule can matter for your next home, if you sell it within 730 days of buying it.

The federal rule for homes owned less than 365 days

The CRA's residential property flipping rule covers a housing unit that was owned for less than 365 consecutive days before it was sold. The profit is fully taxable as business income, and the principal residence exemption is not available. The rule applies to sales on or after January 1, 2023. The CRA lists exceptions for life events, including a death and a serious illness. A home you have owned for decades is outside this rule too. It can matter if you sell your next home within 365 days of buying it.

BC speculation and vacancy tax

The Province describes this as "an annual tax" based on how owners use residential property. Its list of exemptions includes one for a principal residence, for an owner who is a Canadian citizen or permanent resident, is a BC resident for income tax purposes, and meets the Province's other conditions.

What happens to the money after the sale?

Interest and other income earned on the sale money is treated separately from the gain on the home. The CRA says "Interest and other investment income form part of your total income and must be reported on your return." So if you keep sale money in a savings account or a guaranteed investment certificate, the interest goes on your tax return. Ask an accountant or a financial planner what that added income means for you before you decide where to keep the money. We do not give investment advice.

If you deferred your property tax, the Province says you must repay the loan in full when you sell. Our post on property tax deferment and the seniors grant explains the program. If you plan to give part of the money to your children, read helping your children buy first.

Which records should you gather before you list?

The capital gains guide says you do not attach these documents to your return, and that "it is important that you keep these documents in case the CRA asks to see them later". Gather them before you list. An accountant needs them to answer the questions above.

• Purchase documents: the contract, and the statement from your lawyer or notary that shows the price, the date and the legal fees.
• Receipts for additions and improvements. The CRA counts these in the cost of the home.
• The years you rented out all or part of the home, with your tax returns for those years and any election letter.
• The years you lived elsewhere, inside or outside Canada.
• The fair market value on the date you inherited the home, received it as a gift or changed its use. The CRA says to keep a record of each.
• Any other property your family owned in the same years.
• A copy of Form T664, if you or your spouse filed one for property owned at the end of February 22, 1994. The CRA says Form T2091(IND) is used to calculate the gain in that case.

The CRA says to keep your tax documents and records for at least six years. Its circular on records says documents that support the purchase and cost of capital property should be kept until six years from the end of the last tax year in which the transaction could enter a tax calculation. The sale of a home is such a calculation, so keep the purchase papers for at least six years after the end of the tax year of the sale. Our downsizing checklist lists the other papers a sale needs.

This guide is general information about rules that the Canada Revenue Agency and the Province of BC have published. It cannot tell you what your own tax result will be, and the rules can change. Confirm tax questions with your own accountant and legal questions with your own lawyer before you list.

Next step

The tax questions above start from one number: what your house would sell for today. Ask us for a free home value, and a BC-licensed REALTOR® will email you a price range based on recent sales of homes like yours. Then enter that price in the downsizing calculator to see what the move could leave you. You do not have to sell with us. The rest of our downsizing guide covers strata fees, property tax and six Fraser Valley cities.