I rent out a condo in Canada β how are the rental income and eventual sale taxed?
Rental income is taxed each year on your net rent (gross rent minus deductible expenses like mortgage interest, property tax, insurance, and CCA). When you sell, the gain is a capital gain β in 2026 the inclusion rate is 50%, so half the gain is added to your income. And watch the trap: converting a property between rental and personal use triggers a deemed disposition at fair market value, even with no sale.
Rental income: annual
| Deductible | Not deductible |
|---|---|
| Mortgage interest (not principal) | Mortgage principal repayments |
| Property tax, insurance | Your own labour |
| Repairs and maintenance | Land transfer tax (added to cost base instead) |
| Utilities, condo fees, advertising | Personal-use portion of expenses |
| CCA (depreciation) β optional, and it can bite on sale |
CCA is optional for a reason: claiming it reduces the building's cost base, which increases your capital gain (and recapture) when you sell.
The sale: capital gains at 50%
Sale price minus adjusted cost base (purchase price + capital improvements + acquisition costs) = capital gain. In 2026, 50% of the gain is included in income and taxed at your marginal rate. (The 2024 proposal to raise the inclusion rate to 66.67% above $250,000 was never enacted and was dropped β the rate is 50%.)
The change-of-use trap
Move into your rental yourself, or turn your home into a rental, and the tax law treats it as if you sold and rebought at fair market value that day. Elections under subsections 45(2) and 45(3) can defer this β 45(2) for rental-to-personal (keeps it a rental for tax purposes up to 4 years), 45(3) for personal-to-rental (preserves the principal-residence exemption). File the election with your return for the year of the change.
Frequently asked questions
Does the principal residence exemption cover my rental?
Only for years it was your principal residence (ordinarily inhabited) plus one bonus year. A pure rental gets no exemption.
Can I deduct CCA every year to lower rental income?
You can, but CCA claimed is "recaptured" as income on sale. Many landlords skip CCA on purpose.
I lived in it 3 years, rented it 5 β how is the gain split?
Roughly pro-rated by years of principal-residence designation plus the one extra year, over total years owned.
Sources
- https://www.impactcpas.ca/post/%E4%B8%AA%E4%BA%BA%E6%8A%A5%E7%A8%8E%E9%9C%80%E8%A6%81%E6%B3%A8%E6%84%8F%E4%BB%80%E4%B9%88%EF%BC%9F?lang=zh
- https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-claims/line-12700-capital-gains.html (CRA)