How Canadian Property Taxes and Capital Gains Actually Work
Property taxes and capital gains are two of the most commonly misunderstood costs of owning real estate in Canada - partly because the rules genuinely changed (and then changed back) over the past two years. This guide explains how municipal property taxes work, what the capital gains inclusion rate actually is right now after a well-publicized proposed increase was cancelled, and which expenses are deductible for rental property owners.
This is general tax information, not personalized advice. Tax rules are detailed and circumstance-specific - consult a CPA or tax lawyer before making decisions based on your specific situation.
How Canadian Property Tax Actually Works
- Property taxes are levied by municipalities, based on your property's assessed value as determined by your province's assessment authority (MPAC in Ontario, BC Assessment in British Columbia, and similar bodies elsewhere).
- The total rate typically combines a municipal portion (set by local council) and a provincial education portion - in Ontario, for example, the residential education rate is a flat 0.153% province-wide, while the municipal portion varies significantly by city.
- Counterintuitively, cities with the highest home prices often have the lowest percentage tax rates, because a large, valuable tax base lets municipalities raise sufficient revenue at a lower rate. Smaller cities with narrower tax bases often need higher rates to fund the same services, even though this is usually offset by lower home prices.
- Property taxes fund municipal services including police, fire, transit, waste collection, roads, and a portion of education funding.
Property Tax Rates Vary Significantly by City
The table below shows approximate residential property tax rates for several major Canadian cities. These are general ranges based on recent published municipal rates - actual rates change annually and should always be confirmed with your specific municipality before budgeting.
| City | Approximate Residential Rate | Context |
|---|---|---|
| Vancouver | ~0.27%-0.3% | One of the lowest rates in the country, offset by high assessed home values |
| Calgary | ~0.6%-0.65% | Alberta generally maintains comparatively low rates across major cities |
| Toronto | ~0.7%-0.8% | Combined municipal and education portions; rate is lower than many surrounding GTA municipalities |
| Montreal | Varies by borough | Municipal portion depends on borough; education tax is set provincially and applies Quebec-wide |
| Winnipeg | ~2.5%-2.7% | One of the highest rates nationally, though lower average home prices offset some of the impact |
| Halifax | Varies by urban/suburban zone | Combines a general municipal tax and a provincial tax; rate differs for urban vs. suburban properties |
Note: These are simplified percentage ranges and exclude additional charges such as vacant home taxes, local improvement levies, or special assessments that may apply in specific cities. Always confirm the current rate directly with your municipality, since rates are reviewed and adjusted annually.
Capital Gains on Real Estate: What Actually Applies Right Now
This is an area where outdated information circulates widely, so it's worth being precise. In the 2024 federal budget, the government proposed increasing the capital gains inclusion rate (the portion of a gain that's taxable) from 50% to 66.67% on gains above $250,000 for individuals, and on all gains for corporations and most trusts. This proposed increase was first deferred to January 1, 2026, and then formally cancelled by the federal government on March 21, 2025.
As a result, the capital gains inclusion rate remains 50% - exactly where it has been for years. If you sell a property and realize a capital gain, only half of that gain is included in your taxable income, taxed at your marginal rate. The other half is not taxed. This applies to investment and rental properties; your principal residence may be exempt entirely under the principal residence exemption, covered below.
One related change did go through: the Lifetime Capital Gains Exemption (LCGE) for qualifying small business shares and farming or fishing property increased to $1.25 million, effective June 25, 2024, and is now indexed to inflation. This is most relevant to business owners and farmers selling qualifying business assets - it does not apply to a typical residential property sale.
The Principal Residence Exemption
- If a property has been your principal residence for every year you owned it, the gain on sale is generally exempt from capital gains tax entirely - this is one of the most significant tax benefits available to Canadian homeowners.
- You must designate the property as your principal residence on your tax return for the relevant years; the CRA requires this reporting even though no tax is owed.
- If you owned a property for part of the time as a principal residence and part of the time as a rental or investment property, only the portion of the gain corresponding to the non-principal-residence period is generally taxable.
- Investment and rental properties that were never your principal residence are subject to capital gains tax on sale at the current 50% inclusion rate.
Deductible Expenses for Rental Property Owners
If you own a rental property, several expenses can typically be deducted against your rental income, reducing your taxable amount:
- Mortgage interest on the loan used to purchase or improve the rental property (not your principal residence - mortgage interest on your own home is generally not deductible in Canada)
- Property taxes, insurance premiums, and condo fees attributable to the rental property
- Maintenance, repairs, and property management fees
- Capital cost allowance (CCA) on the building itself, though claiming CCA has specific rules and can affect your principal residence exemption eligibility if you later move into the property - this is an area where professional advice is particularly worthwhile
Keep accurate records of purchase price, capital improvement costs, and all rental income and expenses - this documentation is what supports your numbers if the CRA reviews your return.
Model how property taxes and other carrying costs affect your overall budget with our Affordability Calculator.
Frequently Asked Questions About Property Taxes and Capital Gains
Is my primary residence exempt from capital gains tax in Canada?
Generally, yes. The principal residence exemption applies if the property was your principal residence for every year you owned it, and you designate it as such on your tax return. Investment or rental properties that were never your principal residence are subject to capital gains tax on sale. This is general information, not personalized tax advice - confirm your specific situation with a tax professional, especially if the property's use changed over time.
What is the capital gains inclusion rate in Canada right now?
The capital gains inclusion rate is 50%, meaning half of any capital gain is included in your taxable income and taxed at your marginal rate. A proposed increase to 66.67% was announced in the 2024 federal budget, deferred to January 2026, and then formally cancelled in March 2025. It was never enacted into law, so the 50% rate has remained in effect throughout.
Can I deduct mortgage interest on my home?
Mortgage interest on your principal residence is generally not tax-deductible in Canada. However, if you have a rental or investment property, mortgage interest on the loan used to purchase or improve that property is generally deductible against your rental income. This is general information, not personalized tax advice - confirm your specific situation with a tax professional.
Do property tax rates vary significantly across Canada?
Yes, substantially. Cities with high home values, like Vancouver, often have some of the lowest percentage rates (around 0.27%-0.3%), while cities with lower average home prices, like Winnipeg, often have considerably higher rates (around 2.5%-2.7%). Because the dollar amount owed depends on both the rate and the assessed value, a lower percentage rate doesn't always mean a lower total bill - always check your specific municipality's current rate.
What is the Lifetime Capital Gains Exemption and does it apply to selling my home?
The Lifetime Capital Gains Exemption (LCGE) is $1.25 million as of June 25, 2024, and applies to gains on qualifying small business shares and farming or fishing property - it does not apply to the sale of a typical residential property. For most homeowners, the principal residence exemption, not the LCGE, is the relevant tax provision when selling a home.
Bottom Line
Property tax rates vary enormously by city in Canada, and the percentage rate alone doesn't tell the full story - always factor in the actual assessed value of a property when comparing costs across markets. On capital gains, the headline news is that the widely-discussed inclusion rate increase to 66.67% was cancelled in March 2025 and never took effect; the rate remains 50% as it has been for years. This is general tax information - for any decision involving real capital gains exposure, deductibility questions, or rental property structuring, work with a CPA or tax lawyer familiar with your specific circumstances.
To understand other closing costs, see our guides to land transfer tax in Ontario and land transfer tax in Alberta.
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