Capital Gains on a Second Property in Canada
Capital gains on a second property in Canada: how the gain is worked out, what the principal residence exemption covers, and what a Canmore owner pays.
- Capital gains on a second property in Canada are calculated as proceeds of disposition minus the adjusted cost base minus the outlays and expenses of selling.
- The inclusion rate is one-half. The proposed increase to two-thirds was deferred and then cancelled, and the CRA's 2025 Capital Gains guide states the rate for 2025 is 50%.
- Only one home per family per year may be designated as a principal residence for 1982 and later years, so a Canmore second property usually cannot be fully sheltered.
- Additions and improvements go into the adjusted cost base. Current expenses such as maintenance and repairs do not, which is why receipts matter over a long holding period.
- A non-resident vendor must notify the CRA within 10 days of disposing of the property, and a purchaser may withhold 25% of the proceeds where no certificate of compliance is issued.
Capital gains on a second property in Canada are the biggest single question a Canmore owner asks before selling, and for a good reason: a large share of the town's housing is somebody's second home. This is general information rather than tax advice, and the arithmetic below is the CRA's, not ours. Take the specifics to an accountant before you list, because the details of your own ownership history change the answer more than the headline rules do.
How capital gains on a second property in Canada are calculated
The formula is short. Your capital gain is the proceeds of disposition, minus the adjusted cost base of the property, minus the outlays and expenses you incurred to sell it. Half of that gain is taxable and is added to your income for the year at your marginal rate. Capital gains in Canada have no separate rate of their own: the half that is included is taxed exactly like salary.
An illustration with round numbers, not a real sale:
| Line | Amount |
|---|---|
| Proceeds of disposition | $1,200,000 |
| Less: original purchase price | $600,000 |
| Less: legal fees and registration on the purchase | $2,000 |
| Less: capital improvements over the holding period | $80,000 |
| Adjusted cost base | $682,000 |
| Less: outlays and expenses on the sale | $42,000 |
| Capital gain | $476,000 |
| Taxable capital gain at 50% | $238,000 |
The outlays and expenses line is the one people forget. The CRA defines it as amounts incurred to sell a capital property, and its own list includes fixing-up expenses, finders' fees, commissions, brokers' fees, surveyors' fees, legal fees, transfer taxes and advertising costs. Real estate commission belongs there, which is worth knowing in a market where what it costs to sell in Canmore runs into five figures on almost every transaction.
One asymmetry is worth planning around. A home is personal-use property, so capital gains on it are taxable while a loss on the sale is not claimable at all. There is no downside protection in the tax treatment.
The principal residence exemption in Canada, and its limit
The principal residence exemption is what stops most Canadians paying tax when they sell the house they live in. If a property was solely your principal residence for every year you owned it, the gain is not taxed.
The constraint that matters here is the designation rule. For 1982 and later years, only one home may be designated as a family's principal residence for each year. For 1993 and later tax years the CRA defines that family as you, your spouse or common-law partner throughout the year, and your children other than a child who was 18 or older or who had a spouse during the year. So a household with a Calgary house and a Canmore condo has to choose which one is designated for each year of overlap. Designating the Canmore property for a year means not designating the Calgary one for the same year.
Two further points. A property qualifies for a year only if you, your spouse or common-law partner, or one of your children lived in it at some time during that year, so a property nobody ever occupies cannot be designated. And the land counted as part of a principal residence is generally capped at half a hectare, about 1.24 acres, unless you can show more is needed to use and enjoy the home.
Reporting is not optional. Since the 2016 tax year the CRA will only allow the exemption if you report the disposition and the designation on your return, on Schedule 3 and Form T2091(IND). A late designation is accepted in certain circumstances, but a penalty may apply.
What actually goes into the adjusted cost base
The adjusted cost base is usually the cost of the property plus the expenses of acquiring it, such as commissions and legal fees. It also includes capital expenditures: the cost of additions and improvements. It does not include current expenses. The CRA is direct on the point, saying you cannot add current expenses such as maintenance and repair costs to the cost base of a property.
The inclusion rate, and the 2024 change that did not happen
Half of a capital gain is taxable. That is the position in Canada today, and the recent history is worth stating clearly because a great deal of stale commentary on capital gains is still online.
Budget 2024 proposed raising the inclusion rate in Canada from one-half to two-thirds on capital gains above $250,000 a year for individuals. On 31 January 2025 the Department of Finance announced a deferral of the effective date to 1 January 2026, and the CRA said it had reverted to administering the enacted rate of one-half. The increase was subsequently cancelled: the federal Spring Economic Update 2026 records the cancellation of the proposed increase in the capital gains inclusion rate in its revenue projections, and the CRA's Capital Gains guide for 2025 states plainly that the inclusion rate for 2025 is 50%. Its "New for 2025" section lists no inclusion rate change at all.
There is one trap specific to a property held briefly. Capital gains on a housing unit in Canada owned for fewer than 365 consecutive days before disposition are deemed to be business income rather than capital gains, unless the sale happened because of one of a defined list of life events such as a death, a relationship breakdown, a serious illness or an eligible relocation. Business income is fully taxable, with no half-inclusion and none of the relief that applies to capital gains.
Change of use, and renting a Canmore second home
Every time you change the use of a property you are considered to have sold it at fair market value and immediately reacquired it at the same amount, with the resulting capital gains or losses reportable in the year of the change. Turning a second home into a nightly rental, or a rental back into a home you use, can therefore trigger a deemed disposition without any money moving.
There are elections that postpone this. A subsection 45(2) election lets an owner treat a home that has become an income-producing property as though the change had not occurred, and while it is in effect the property can be designated as a principal residence for up to four years even though nobody is living in it, provided no other property is designated and the owner is resident in Canada for the year. A subsection 45(3) election runs the other way. Neither is automatic, both have conditions, and one bars claiming capital cost allowance. If your Canmore property has a rental history, whether that is a long-term tenancy or a licensed tourist home, this is the part of the file to hand to an accountant first.
If you are a non-resident of Canada
The mechanics change. A non-resident vendor must notify the CRA of the disposition within 10 days, using Form T2062 for taxable Canadian property, and provide payment or acceptable security for the resulting tax. The CRA then issues a certificate of compliance, Form T2064 for a proposed disposition or T2068 for an actual one.
If no certificate is issued, the purchaser may become liable for the vendor's tax and is entitled to withhold 25% of the proceeds, and 50% on certain types of property. Missing the 10-day window carries a penalty under subsection 162(7) of $25 for each day the notification is late, with a minimum of $100 and a maximum of $2,500. A non-resident individual must then file a Canadian return by 30 April of the following year, with a copy of the certificate attached. None of this is unusual in the Bow Valley, but it takes weeks rather than days, so it belongs in the plan before an offer is accepted.
What capital gains on a second property in Canada mean for a Canmore sale
Capital gains on a second property in Canada come down to three numbers you can influence and one you cannot. You can influence the adjusted cost base, by having kept the record of every improvement. You can influence the outlays and expenses, because commission and legal fees come off the gain before the capital gains calculation is done. You can influence the year the disposition falls into, through the possession date. What you cannot influence is that only one property per family per year can carry the exemption. Start with a current value, from a Canmore home evaluation rather than an automated estimate, take that figure and your improvement records to an accountant, and read selling a second home in Canmore alongside the Livability Tax rules that apply while you still own it. This page is general information and not tax advice.
Fifteen minutes with a local REALTOR®: a current value for the property, the selling costs that come off the gain, and what a possession date does to your timing. Free, no obligation, and no substitute for your accountant.
Frequently asked
Do I pay capital gains tax when I sell a second home in Canada?
Usually yes, on the part of the gain not sheltered by the principal residence exemption. The gain is proceeds minus the adjusted cost base minus your selling costs, and half of it is included in income at your marginal rate. A Canmore second home is rarely the property a family designates, because the exemption is limited to one home per family per year.
What is the principal residence exemption in Canada?
It removes the capital gain on a home that was your principal residence for every year you owned it. The property has to qualify each year, you or your spouse, common-law partner or child must have lived in it at some point in the year, and you must designate it. For 1982 and later years only one home per family can be designated for each year, which is why selling a second home in Canmore usually produces a taxable gain.
Is the capital gains inclusion rate still 50%?
Yes. The proposed increase to two-thirds above $250,000 was deferred to 1 January 2026 in January 2025 and then cancelled, a cancellation carried through the federal Spring Economic Update 2026. The CRA's Capital Gains guide for 2025 states that the inclusion rate for 2025 is 50%. Confirm the position for your own year with an accountant before you sign anything, and see what it costs to sell in Canmore for the expenses that come off the gain first.
Which renovations increase my adjusted cost base?
Capital expenditures do: additions and improvements such as a new deck, a finished basement or a replaced roof, along with the legal fees and commissions paid to acquire the property. Current expenses do not, which the CRA defines to include maintenance and repair costs. Keep the invoices, because the holding period on a Canmore property is often measured in decades.
What happens if I am a non-resident when I sell?
You must notify the CRA within 10 days of the disposition using Form T2062 and pay or secure the tax, and the CRA then issues a certificate of compliance. If no certificate is issued, the purchaser may withhold 25% of the proceeds, and 50% on certain types of property. Late notification carries a penalty of $25 a day, with a minimum of $100 and a maximum of $2,500. The Canmore Livability Tax is a separate obligation that can apply while you still own the property.
- CRA Guide T4037, Capital Gains 2025 (definitions of adjusted cost base, outlays and expenses; the inclusion rate for 2025 is 50%)
- CRA: Principal residence (one home per family per year for 1982 and later; designation on Schedule 3 and Form T2091(IND); change of use rules)
- CRA: Update on the administration of the proposed capital gains taxation changes, 31 January 2025 (deferral to 1 January 2026; CRA reverted to the one-half rate)
- Government of Canada, Spring Economic Update 2026, Annex 1 (the cancellation of the proposed increase in the capital gains inclusion rate)
- CRA: Disposing of or acquiring certain Canadian property (10-day notification, Forms T2062, T2064 and T2068, 25% withholding, s.162(7) penalty)