The proposed 66.7% inclusion-rate hike was cancelled in March 2025. The rate is still 50%. Here's what's actually taxed in 2026, and what isn't.
In brief
The federal capital gains inclusion rate is 50% in 2026 — the proposed two-thirds increase was cancelled on March 21, 2025. Your principal residence is fully exempt for every year it was your principal residence (the PRE). Second homes, rentals, and investment properties are taxed on 50% of the gain at your marginal rate.
Capital gains rules on Canadian real estate moved twice in 2024–2025, and a lot of online content is still out of date. The short version: in 2026 the inclusion rate is still 50%, the principal residence exemption (PRE) still wipes out tax on a home that was your principal residence for every year you owned it, and the rules for second homes, rentals, and inherited property haven't fundamentally changed.
No. The proposed increase from 50% to 66.7% (two-thirds) was announced in 2024, then deferred to January 1, 2026, and then formally cancelled on March 21, 2025. The CRA reverted, and the inclusion rate is back to 50% — which is what applies in 2026.
If you read an article claiming the 66.7% rate applies, it's out of date. Confirm with Canada.ca or your accountant before relying on any other source.
Generally no. The principal residence exemption (PRE) eliminates capital gains tax on a property that was your principal residence for every year you owned it. You report the sale on Schedule 3 and designate the property using Form T2091, but no tax is owed.
Caveats: only one property per family per year can be designated as principal residence; the PRE has an 'ordinarily inhabited' standard (you have to actually live there); and the CRA has been increasingly scrutinizing claims, especially on properties owned only briefly.
Partial PRE applies. If you rented a basement suite or used part of the home for business, the PRE only covers the portion that was used as your principal residence. A common simple rule: pro-rate by floor area used as principal residence, but proportions and supporting documentation matter — a tax accountant should run the calculation if any portion was rented for an extended period.
Short-term rentals (Airbnb) can trigger additional complications — including changes to GST treatment and possibly a deemed change in use. If you've had Airbnb income on the property, talk to an accountant before listing.
| Scenario | PRE applies? | Tax owed on the gain |
|---|---|---|
| Principal residence the entire ownership period | Yes — full | None |
| Principal residence part of the period only | Yes — partial | 50% × prorated gain × marginal rate |
| Basement suite rented continuously | Yes — partial (by floor area) | 50% × non-PRE portion × marginal rate |
| Second home or cottage | Possibly — but only one PRE per family per year | 50% × full gain × marginal rate if no PRE |
| Rental property (never your home) | No | 50% × full gain × marginal rate |
| Inherited property — gain after death only | Depends on use after inheritance | Heir's tax on post-death gain |
If the property has never been your principal residence, the gain is fully taxable at the 50% inclusion rate. So on a $200,000 capital gain at a 40% combined marginal rate, you'd owe roughly $40,000 in tax ($200,000 × 50% × 40%). The exact rate depends on your other income that year.
Selling a property with a long ownership period and significant appreciation can trigger a big one-year tax bill. Some sellers spread gains by realizing other capital losses in the same year, or by donating securities to offset.
Yes — they are separate, and both can apply to the same sale. If you sell within 730 days of purchase, BC's home-flipping tax kicks in at up to 20% of profit (sliding down to 0% by day 730), on top of federal capital gains tax. See the flipping-tax guide for exemptions.
Even if you owe no tax (because the PRE applies), you must report the sale on Schedule 3 of your T1, and designate the property using Form T2091. Failing to report a principal-residence sale can result in penalties even when no tax is owed.
For non-principal-residence sales, you'll calculate the capital gain (proceeds − adjusted cost base − selling costs), apply the 50% inclusion rate, and report the taxable portion on Schedule 3.
Did the capital gains inclusion rate increase to 66.7%?
No. The proposed increase was deferred and then formally cancelled on March 21, 2025. The inclusion rate remains 50% in 2026. Any article claiming otherwise is out of date.
Do I pay capital gains tax when I sell my home in BC?
If it was your principal residence for every year you owned it, no — the principal residence exemption (PRE) wipes out the gain. You still have to report the sale on Schedule 3 and designate it with Form T2091.
What if I rented out part of the house — does the PRE still apply?
It applies partially. Pro-rate the gain by the portion used as principal residence (typically by floor area and time). The rented portion is taxed at the 50% inclusion rate × your marginal rate. Talk to a tax accountant if any meaningful portion was rented.
How much capital gains tax will I owe on a rental property?
Roughly 50% of the gain × your marginal tax rate. So a $200,000 gain at a 40% combined marginal rate = roughly $40,000 in tax. Your accountant will calculate exactly based on your other income.
Is BC's home-flipping tax the same as federal capital gains?
No — they're separate. The BC home-flipping tax applies if you sell within 730 days of buying (20% of profit if within 365 days, sliding to 0% by day 730), on top of federal capital gains tax. Both can apply to the same sale.
Do I need to report the sale of my home if no tax is owed?
Yes. Since 2016 the CRA requires all principal residence sales to be reported on Schedule 3 and designated with Form T2091. Failing to report can result in penalties even when no tax is owed.
Can I avoid capital gains by gifting the property to a family member?
No. A gift to a non-spouse triggers a deemed disposition at fair market value, taxed the same as a sale. The recipient takes the FMV as their cost base. Transfers to a spouse can defer the gain (rollover), but the planning is technical — talk to a tax professional.
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This page is general information, not legal, tax, or financial advice, and figures are current as of May 2026 and subject to change. Every home and situation is different — confirm specifics with a qualified real estate lawyer, accountant, or the relevant authority (BC Government, CRA) before acting. Sebastian Czarkowski is a licensed REALTOR® (BCFSA), not a lawyer or tax advisor.