Real estate and tax: buying, renting, selling

Property affects your taxes when you buy your first home (savings programs and a credit), while you rent it out (the rent is income, and many costs are deductible) and when you sell (the gain on your own home is usually tax-free, but gains on other property are taxed).

Buying your first home

Three federal measures help first-time buyers:

• First home savings account (FHSA). If you’re a first-time home buyer, you can save in an FHSA to buy or build a qualifying first home tax-free. Contributions are generally deductible, and your room in the year you open your first FHSA is $8,000.
• Home Buyers’ Plan (HBP). You can withdraw from your RRSPs to buy or build a qualifying home and repay the money over 15 years. For a first HBP withdrawal made from 2022 to 2028, repayments start in the fifth year after the withdrawal year. You can use the HBP and an FHSA for the same home if you meet the conditions for each; see FHSA and the Home Buyers’ Plan.
• Home buyers’ amount. A non-refundable federal credit. Generally you qualify if you didn’t live in another home that you or your spouse or common-law partner owned in the year of purchase or the four years before (different rules apply for a person with a disability), and you plan to live in the new home within a year. Eligible co-buyers can split it.

Renting out property

Rent you collect is income, reported on Form T776. If you provide only basic services such as heat, light, parking and laundry, it’s usually income from property. If you add services like cleaning, security or meals, you may be running a business, which is reported differently.

You can deduct reasonable expenses for earning the rent, including:

• interest on money you borrowed to buy or improve the rental property
• property taxes for the period the property was available for rent
• other running costs, such as insurance and minor repairs and maintenance

You can’t deduct the principal part of your mortgage payments, the value of your own labour, or penalties on your tax assessments. Land transfer tax isn’t deductible either; it’s added to the property’s cost.

The building (not the land) can be depreciated through capital cost allowance (CCA). CCA is optional: you can claim any amount from zero up to the maximum for the year. You can’t use it to create or increase a rental loss.

Short-term rentals (less than 90 consecutive days) have an extra rule: you can’t deduct expenses for any period when the rental wasn’t allowed where it’s located, or didn’t have a registration, licence or permit the province or municipality requires.

If you rent out part of the home you live in, see Renting out part of your home.

Selling your home

If a home was solely your principal residence for every year you owned it, you don’t pay tax on the gain when you sell it. A principal residence can be a house, cottage, condo, apartment, trailer, mobile home or houseboat that you own, alone or jointly, and that you, your current or former spouse or common-law partner, or one of your children lived in at some time during the year. Your family (generally you, your spouse or common-law partner, and your children under 18 who don’t have a spouse or partner) can designate only one home per year.

You must still report the sale and the designation on your return, using Schedule 3 and Form T2091(IND), even if no tax is owing. Since 2016, the CRA allows the exemption only if you report it. If you forget, ask the CRA to amend that year’s return; a penalty may apply.

A home is personal-use property, so if you sell it at a loss, you can’t claim the loss. More in The principal residence exemption.

Selling other property

Selling a rental property, or a cottage or home you don’t designate as your principal residence, for more than it cost can give you a capital gain, reported on Schedule 3. Only the taxable part of the gain is added to your income; see How investments are taxed. If you claimed CCA on a rental, you may also have to add a recapture of CCA to your income in the year you sell, or you may be able to deduct a terminal loss.

Watch these rules:

• Flipping. If you owned a housing unit in Canada (including a rental) for less than 365 consecutive days before selling it, any gain is generally treated as business income, not a capital gain. Exceptions apply if you sold because of certain life events, such as a death in the family, a separation, a serious illness or a move for work or school.
• Change in use. Turning your home into a rental, or a rental into your home, counts as selling it at fair market value and buying it back. You may have to report a gain that year, but not the part that relates to years it was your principal residence. In some cases you can elect to postpone it.
• Mixed use. If part of your home is used to earn income, the gain on that part may be taxable. The whole home can keep its principal residence status if the income use is minor, you make no structural changes, and you don’t claim CCA.