What Taxes Do You Pay When Selling a House in Ontario?

Taxes and real estate are at the forefront of Canadians’ consciousness, and more Canadians are asking, what taxes do you pay when selling a house?

British Columbians were surprised to learn that the Canada Revenue Agency (CRA) uncovered $1.3 billion in unpaid taxes in the British Columbia real estate market. The tax-collecting agency identified approximately $957 million in unpaid income taxes over eight years of audits targeting the provincial housing sector. The CRA reported that it discovered “a disproportionate amount of non-compliance” in the nation’s major urban centres, though Metro Vancouver was identified as “an area that requires our attention.”

This type of report, which captured the national media spotlight this spring, has many buyers and sellers wondering if they have been doing anything wrong and could receive a phone call or a letter from the CRA, especially with an updated tax code from Ottawa. So, what should homeowners know about taxes when selling a house in, let’s say, the Ontario real estate market?

Let’s break it down and comb through the facts and figures of selling a house in Ontario.

What Taxes Do You Pay When Selling a House in Ontario?

Since the federal government updated its capital gains tax rates, many Canadian homeowners have wondered if they would face a capital gains tax on their homes. The good news is that the newest numbers will only apply to recreational properties rather than principal residences. This was a relief to millions of homeowners who feared receiving a huge tax bill once the house was put for sale.

So, what should everyone know now that the smoke has cleared, the dust has settled, and market watchers have combed through all the details?

Here is a list of taxes that you need to be aware of when selling your house:

Capital Gains Taxes on Recreational Properties

As part of Budget 2024, the Canadian government introduced a hike on specific capital gains. So, if you are selling your cabin in Ontario’s cottage country, here is how the capital gains tax would work. A capital gain of more than $250,000 will be taxed on 66.67 per cent of the gain as income, up from the current rate of 50 per cent rate.

Technically, you can file a capital loss if you sell your recreational property for less cash than you originally purchased it. This could be used to trim your income on your tax return, but this is more for the tax accountants and experts at the Canada Revenue Agency (CRA).

Property Flipping Taxes

Meanwhile, property flipping is another taxed transaction. Beginning in January 2023, any gains from selling a home that has been owned for fewer than 365 straight days have been classified as business income. Therefore, it would not be eligible for the capital gains inclusion rate.

In addition, you might be required to charge sales tax on a newly built or substantially renovated home. If this was your primary residence, you can apply for some or all of the GST/HST paid. It is best to contact the CRA to find out if you need to file a GST/HST new housing rebate application.

Property Tax

With property taxes paid on a pro-rated basis, you might still be forced to pay a portion of the property levies for the year of the transaction.

Principal Residence Exemption

Once again, Ottawa has not mandated homeowners to pay a capital gains tax on the sale of their principal residence. At the same time, according to the CRA, if you sell your principal residence, you must still report it to the federal government “and designate the property on Schedule 3.”

Is the CRA Watching?

Following the CRA’s eye-opening report, industry experts say that Canadian real estate market participants, whether buying or selling, need to behave as if the CRA is always watching. The Department of Finance concluded that individuals are not correctly reporting the data, particularly for property flips, as they will report the transactions as capital gains or apply for principal residence exemption to trim their profits.

In Ontario, for instance, the CRA noted that most of the non-compliance was related to unpaid GST and HST on new homes or incorrectly claiming rebates on those taxes.

As the CRA adopts a wide range of tools, such as third-party data or analytics, officials will be able to accurately and swiftly determine whether citizens are complying with federal tax laws.

If you’re wondering about the taxes you pay when selling a house in Ontario, consult a tax expert and connect with a RE/MAX agent.