Published 29 September 2026 · By Jatin Dua, Broker of Record, RE/MAX Quantum Realty
If the house was solely your principal residence for every year you owned it, the gain is not taxed. You still have to report the sale on Schedule 3 and Form T2091 for the year you sell. If you file the designation late, the penalty is $100 for each full month, up to $8,000. The real tax risk is usually a second property. A cottage or rental can produce a taxable capital gain, and that income can push you over the 2026 OAS recovery threshold of $95,323. Above that line, 15% of the excess is clawed back. A fully exempt home sale adds nothing to that income. When you buy your next home, you pay land transfer tax again, and repeat buyers don’t get the first-time refunds.
What is taxed and what isn’t: the short version
Most people selling a family home in retirement owe no income tax on the sale. What catches them out is reporting it, a second property, or the knock-on effect on benefits. Here’s the whole picture on one table.
| Item | Taxed? | Where it shows up |
|---|---|---|
| Gain on a home that was your principal residence every year you owned it | No | Reported on Schedule 3 and page 1 of Form T2091 |
| Gain on a cottage, rental or second home not designated for those years | Yes, the taxable part is added to your income | Schedule 3 for the year of sale |
| Cash you give your children from the proceeds | No tax for them on receiving it (CRA) | Nothing to report on their return |
| Interest or returns you earn on the proceeds | Yes, as it is earned | Your return each year |
| Land transfer tax on the home you buy next | Yes, a purchase tax | Paid by your lawyer at closing |
This is general information from CRA and Ontario pages, current as of September 2026. Your accountant should look at your own numbers.
The principal residence exemption in plain language
CRA’s definition is broader than most people expect. A principal residence can be a house, cottage, condo, apartment, trailer, mobile home or houseboat that you own alone or jointly. It qualifies if you, your spouse or partner, or any of your children “lived in it at some time during the year”. The land that comes with it is usually limited to half a hectare, which is 1.24 acres.
The key rule is that for every year from 1982 onward, “you can only designate one home as your family’s principal residence”. If the home you’re selling was solely your principal residence for every year you owned it, there is no tax on the gain. For a couple who bought a Toronto bungalow in the 1980s and never owned anything else, that’s usually the whole story. They report the sale, but they don’t pay tax on it.
It gets harder if you owned two properties at the same time, rented out part of the house, or ran a business from it. For how a taxable gain is calculated, see capital gains when downsizing in Ontario.
Reporting the sale: Schedule 3 and Form T2091
Since the 2016 tax year, CRA has required you to report the sale of a principal residence, even when no tax is owing. You do it on Schedule 3 of your return for the year of the sale, and you complete Form T2091(IND) to designate the property.
- Page 1 is often enough. From 2017, you only need page 1 of T2091 if the home was your principal residence for all the years you owned it, or all but one.
- Co-owners each report. If you and your spouse own the house jointly, ask your accountant how to show each share.
- Late costs money. If you file the designation late, the penalty is the lesser of $8,000 or “$100 for each complete month”. Eighteen months late would be $1,800 (simple arithmetic on the CRA rule). Eighty months or more hits the $8,000 cap.
I’ve written a step-by-step walk-through for sellers in principal residence reporting when you downsize. Give it to whoever prepares your return the year you sell.
Two properties, one exemption: the cottage question
This is where retirees actually pay tax. Many GTA couples own the city house and a cottage, or a condo they rented out for years. A family can only designate one property per year. So when you sell the second one, some or all of its gain is usually taxable.
You get a choice, and it’s worth money. You can decide which property to designate for which years. The usual thinking is to put the exemption where the gain per year was largest. But the maths depends on purchase dates, prices and improvements, and it has to be done before you file. This is accountant work, not a rule of thumb.
Giving the cottage to a child doesn’t avoid the problem. CRA says that “if you give capital property as a gift, you are considered to have sold it at its fair market value”. A sale to a family member below market value is also treated as a sale at fair market value. There’s more on that in giving your children money from the house sale.
The OAS clawback: why a cottage gain can cost you and an exempt home sale can’t
Old Age Security is paid in full up to an income threshold, then recovered at 15% of your income above it. CRA calls this the recovery tax. These are the figures on the federal pages as of September 2026:
| Item | Amount |
|---|---|
| OAS, ages 65–74 (July–Sept 2026) | Up to $751.97 a month |
| OAS, ages 75+ (July–Sept 2026) | Up to $827.17 a month |
| Recovery threshold, 2025 income | $93,454 |
| Recovery threshold, 2026 income | $95,323 |
| Recovery rate | 15% of net income above the threshold |
| Full clawback, 2026 income (estimate) | About $155,109 (65–74) / about $161,088 (75+) |
A principal residence gain that is fully exempt is reduced to nil on Schedule 3, so it adds nothing to the income used for the OAS test. Selling the family home, even for $1,500,000, doesn’t touch your OAS on its own.
A taxable gain on a cottage or rental is different. The taxable part is added to your income for that year. Say it lifts your net income for 2026 to $115,323. That’s $20,000 over the threshold, so the recovery is 15% of $20,000, which is $3,000. That’s illustrative arithmetic on CRA’s published rate, not a forecast.
Other income-tested benefits react the same way. GIS for a single person is up to $1,123.17 a month, but only when income is under $22,800. Ontario’s Senior Homeowners’ Property Tax Grant phases out between $35,000 and $50,000 for a single person. The Ontario Seniors Care at Home Tax Credit phases out between $35,000 and $65,000 of family net income. Ask your accountant whether the timing of a sale, such as which tax year it closes in, changes the result for you.
Land transfer tax on the next home
There’s no age exemption from land transfer tax. When you buy your next home, Ontario charges 0.5% on the first $55,000, 1.0% to $250,000, 1.5% to $400,000, 2.0% to $2,000,000 and 2.5% above that. Inside the City of Toronto, the municipal tax uses the same brackets up to $2,000,000, so the total roughly doubles.
| Purchase (August 2026 median, TRREB) | Ontario tax | Plus Toronto municipal tax |
|---|---|---|
| City of Toronto condo apartment, $550,000 | $7,475 | $14,950 total |
| Mississauga condo townhouse, $690,000 | $10,275 | Not applicable (outside Toronto) |
I worked these out from the published brackets. The medians are from a single month, so treat them as illustrative. Both first-time buyer refunds require that you have never owned a home anywhere in the world, so most retirees get neither. One exception to note: the Land Transfer Tax Act exempts buyers of non-profit life leases under certain conditions (see life lease housing in Ontario). Try your own numbers in the land transfer tax calculator.
Questions to bring to your accountant
- Was this home our only principal residence for every year we owned it? If not, which years are affected?
- Do we need page 1 of T2091, or the full form?
- If we own a cottage or rental, which property should we designate for which years?
- Will any taxable gain push either of us past the OAS recovery threshold, or affect GIS or Ontario credits?
- Would closing in January instead of December change anything?
- Where should the proceeds sit, and how will the income they earn be taxed?
Take your purchase documents, records of major improvements, and the sale agreement.
Next steps
For a straightforward home, the tax side of selling is mostly paperwork. You do need to get it right, and on time. Work out roughly what the sale will free up first. The downsizing money planner below estimates the equity and compares the monthly cost of staying with the cost of moving. Then book time with your accountant before you list, not after you close. For where to go next, the GTA retirement guide compares every city on prices, taxes, transit and hospitals.
If you would like to talk any of this through, with or without your family on the line, book a call or phone 833-330-1925. No pressure and no obligation.
Free tool — Downsizing money planner
Downsizing money planner
See roughly how much a move frees up, what the next place costs, and how long the money lasts. Prices start at TRREB’s August 2026 medians; change any number to match your home.
Want the line-by-line breakdown, plus what homes like yours actually sold for on your street? I’ll show the full breakdown here and send you a short written plan. No obligation, no spam.
Estimates only, not advice or a valuation. Starting prices are TRREB Market Watch August 2026 medians (one month, whole-municipality figures). Rent default: Rentals.ca August 2026 Toronto average asking rent. Retirement home default: CMHC’s last Seniors’ Housing Survey (2021, Toronto, studio or private room with meals; CMHC has since discontinued it), so expect higher today. Land transfer tax uses Ontario’s brackets, plus Toronto’s municipal tax for Toronto purchases; repeat buyers get no first-time rebate. Property tax is estimated on the price, but your bill is based on MPAC’s assessed value, which is usually lower.
Frequently asked questions
Do seniors pay capital gains tax when they sell their house in Ontario?
Not on a home that was solely your principal residence for every year you owned it. Age doesn’t change the rule either way. You still have to report the sale on Schedule 3 and Form T2091. Tax usually comes up only when there’s a second property, like a cottage or rental, or when part of the home earned income.
Does selling my house affect my Old Age Security?
A fully exempt principal residence sale doesn’t add to the income used for the OAS test, so it shouldn’t trigger the clawback on its own. A taxable gain on a cottage or rental does count. For 2026 income, 15% of net income above $95,323 is recovered.
What happens if I forget to report the sale of my home?
CRA can charge a penalty for a late designation: $100 for each complete month, up to $8,000. Your accountant can file the designation late and explain the options. It’s much cheaper to include Schedule 3 and T2091 with the return for the year you sell.
Do I pay land transfer tax again when I downsize?
Yes. Ontario charges it on every purchase, and Toronto adds its own municipal tax inside the city. The first-time buyer refunds only apply if you have never owned a home anywhere, so most retirees don’t qualify. On a $550,000 Toronto condo the combined tax is $14,950, worked out from the published brackets.
Is money from selling my house counted as income?
The sale price isn’t income. An exempt gain on your principal residence isn’t taxed. What does count is the taxable part of a gain on a non-exempt property, and the interest or returns you earn afterwards on the money you invest.
Sources
- CRA — Principal residence and other real estate — definition, one home per family per year, half-hectare rule
- CRA — Reporting the sale of your principal residence for individuals — Schedule 3, T2091, penalty up to $8,000
- Canada.ca — OAS pension recovery tax — 2025 and 2026 thresholds, 15% rate
- Canada.ca — Old Age Security payment amounts — OAS and GIS July–September 2026
- CRA — Transfers of capital property — gift of property treated as a sale at fair market value
- CRA — Amounts that are not reported or taxed — most gifts and inheritances not taxed
- Government of Ontario — Calculating land transfer tax — provincial brackets
- Government of Ontario — Land transfer tax refunds for first-time homebuyers — never owned anywhere; cannot re-qualify
- City of Toronto — Municipal Land Transfer Tax rates and fees — MLTT brackets from 1 April 2026
- Government of Ontario — Senior Homeowners' Property Tax Grant — income phase-out
- Government of Ontario — Ontario Seniors Care at Home Tax Credit — income phase-out $35,000–$65,000
- TRREB — Market Watch, August 2026 — August 2026 condo medians used in land transfer tax examples
Related reading
- Best Places to Retire in the GTA (2026): A City-by-City Comparison
- Capital Gains When Downsizing in Ontario
- Principal Residence Reporting When You Downsize
- Giving Your Children Money From the House Sale
- Reverse Mortgage vs HELOC vs Selling
- Land Transfer Tax Calculator
- Net Proceeds Calculator
About the author — Jatin Dua, Toronto and GTA real estate broker
I am Jatin Dua, Broker of Record and co-founder of RE/MAX Quantum Realty Inc., Brokerage, Unit 101, 799 The Queensway, Etobicoke. I work with buyers and sellers across Toronto and the GTA, and I have helped more than 100 families sell, many of them downsizing after decades in the same house. Four-plus years of active GTA transactions and over $100 million in sales volume. Every market figure here comes from TRREB’s published tables and every rule from the regulator or the legislation, so you can check all of it without asking me.
Reach me at connect@jatindua.com or 833-330-1925, or book a call.