Published 7 September 2026 · By Jatin Dua, Broker of Record, RE/MAX Quantum Realty
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Get My Free Estimate →Three things are true in 2026. The principal residence exemption has no dollar cap and continues to exempt the entire gain on a property designated as a principal residence for each year of ownership, one property per family per year. The proposed increase in the capital gains inclusion rate from one half to two thirds was cancelled on 21 March 2025, so the inclusion rate remains 50%.
And the residential property flipping rule applies to dispositions on or after 1 January 2023: a housing unit owned for fewer than 365 consecutive days generally produces fully taxable business income, with the principal residence exemption denied, unless a listed life event applies.
Where the inclusion rate landed
This caused a great deal of noise and ended quietly. The 2024 federal budget proposed raising the capital gains inclusion rate from one half to two thirds — for individuals, on gains above $250,000 a year. Implementation was deferred in an announcement on 31 January 2025, and then the proposal was cancelled outright on 21 March 2025.
The inclusion rate remains 50%. Any planning built on the assumption that it rose should be revisited.
The principal residence exemption, unchanged
The exemption applies to a property designated as your principal residence for each year of ownership, with one property per family per year, and there is no dollar cap. A home that has appreciated by several million dollars over two decades can be sold with the whole gain exempt if it was designated throughout.
This is worth stating plainly because of what it implies. Concentrating value in the home you actually live in is, from a tax perspective, structurally advantaged over holding a second property — and that advantage grows with value.
The flipping rule catches more people than expected
For dispositions on or after 1 January 2023, if you own a housing unit for fewer than 365 consecutive days, the gain is deemed to be business income, fully taxable, and the principal residence exemption is denied.
The listed exceptions are genuine life events:
- Death of the taxpayer or a related person
- A related person joining the household, or the taxpayer joining a related person’s household
- Breakdown of a marriage or common-law partnership
- A threat to personal safety
- Serious disability or illness
- An eligible work relocation of more than 40 kilometres
- Involuntary termination of employment
- Insolvency
- Involuntary disposition, such as destruction or expropriation
GST and HST on residential property
- Resale of a used home: generally exempt.
- New or substantially renovated home sold by a builder: GST/HST applies. The federal new housing rebate phases out entirely at $450,000 and the Ontario portion caps at a $24,000 maximum, so at luxury prices there is no meaningful relief.
- Assignments of new housing: since 7 May 2022, GST/HST applies to the entire assignment price, including any deposit recovered from the builder, whether or not separately itemised.
- First-Time Home Buyers’ GST rebate (agreements from 27 May 2025): full relief up to $1,000,000, phasing linearly to nil at $1,500,000, maximum $50,000. Irrelevant above $1.5 million.
Two planning points worth raising with your accountant
Designation where two properties are held. Only one property per family per year can be designated as a principal residence. Where a city house and a country property have both appreciated, the allocation of designation years is a real decision with real consequences.
Corporate and trust ownership. Buying a home through a corporation generally forfeits the principal residence exemption on the gain. At the top of the market, where the exempt gain can be very large, that is usually the decisive argument against corporate ownership of a home.
The practical takeaway
The inclusion rate did not change, the principal residence exemption still has no cap, and the 365-day rule is the one most likely to surprise an ordinary family. If you are selling within a year of buying, or you own more than one property, get accounting advice before you list.
Frequently asked questions
Did the capital gains inclusion rate go up?
No. The proposal to raise it from one half to two thirds was first deferred and then cancelled on 21 March 2025. The inclusion rate remains 50%.
Is there a cap on the principal residence exemption?
No dollar cap. A property designated as your principal residence for every year of ownership can be sold with the entire gain exempt, regardless of value. It remains one of the most valuable exemptions in the Canadian tax system, and it is a strong argument for concentrating value in the home you actually live in.
What is the residential property flipping rule?
For dispositions on or after 1 January 2023, if a housing unit is owned for fewer than 365 consecutive days, the gain is deemed fully taxable business income rather than a capital gain, and the principal residence exemption is denied. Exceptions apply for listed life events.
What life events are exceptions to the flipping rule?
The listed exceptions include death, a related person joining or being joined in the household, breakdown of a marriage or common-law partnership, a threat to personal safety, serious disability or illness, an eligible work relocation of more than 40 kilometres, involuntary termination of employment, insolvency, and involuntary disposition such as destruction or expropriation.
Do I pay tax on a second home or cottage?
A gain on a property not designated as your principal residence is generally a capital gain, included at 50%. Only one property per family per year can be designated, so where two properties are held the designation choice is a real planning decision to make with your accountant.
Does GST or HST apply when I sell my home?
Generally not on the resale of a used residential home. GST or HST applies to a newly constructed or substantially renovated home sold by a builder, and since 7 May 2022 to the entire price of an assignment of a new housing purchase agreement.
Thinking about buying or selling at the top end?
Send me the address, or the shortlist you are considering. I will tell you what the property is actually worth today, what the land is worth without the house, what the transfer tax and carrying costs will be, and whether the deal makes sense. Confidential, always.
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Related reading
- The Underused Housing Tax is gone: what that means for 2025 and beyond
- Assignment sales in Toronto: the HST trap and the flipping rule
- Selling an inherited luxury property in Ontario: tax, timing and trustees
- Should you buy a luxury home in a corporation or trust in Ontario?
Sources
Everything above that is a rule, a rate or a published number comes from these. Verify anything that matters to your own deal.
- Department of Finance Canada — Deferral of the capital gains inclusion rate change
- Canada Revenue Agency — GST/HST and assignments of new housing (GI-120)
- Department of Finance Canada — First-Time Home Buyers’ GST rebate
About the author — Jatin Dua, Broker of Record
I’m the Broker of Record at RE/MAX Quantum Realty, 799 The Queensway in Etobicoke, and I work with buyers, sellers and investors across Toronto and the west GTA. A large part of my work sits in the upper end of the market, where the comparables are thin, the rules are heavier and the cost of a wrong number is measured in hundreds of thousands of dollars.
The free estimators on this site are mine. I built them because the first question every owner asks is “what is it worth?” and the honest answer starts with a number you can check yourself. connect@jatindua.com or 437-987-1925.