Taxes and costs when you sell a Toronto house or lot to a builder

Key takeaways

• A sale of your home goes on Schedule 3 and Form T2091(IND) of your tax return, even when the whole gain is exempt.
• The exempt share of the gain is 1 plus the years you designate the home, divided by the years you owned it.
• When part of the gain is taxable, the CRA's 2025 capital gains guide taxes half of it, and Budget 2025 confirmed the planned increase would not go ahead.
• Commissions, legal fees, surveyors' fees and advertising costs reduce a taxable gain.
• The sale of a used home you lived in is usually exempt from HST. A lot split into more than two parts is taxable.
• If the builder pays part of the price in later years, a reserve can spread the gain over up to five years.

What you keep from a sale to a builder

A builder's offer gives you one number: the price. What you keep is a second number. It is the price, less the costs of selling, less any mortgage you pay off, less any tax the sale creates. For many Toronto owners the tax part is zero, because the house was their home every year they owned it. For others it is not, and the reasons are often small facts from years ago: a basement that was rented, a second property, a few years spent living abroad.

A sale to a builder can also add questions that a sale to a family does not. Some builders ask to pay part of the price later. Some owners split their lot first and sell one part. Each of these has its own tax rule.

Each rule below comes from a Canada Revenue Agency (CRA) or Government of Canada page that I read on November 9, 2026. I am a real estate sales representative and I do not give tax advice. Take your own facts to an accountant before you accept an offer.

Your home and the principal residence exemption

The main tax rule for a homeowner is the principal residence exemption. It lets you sell the home you lived in without tax on the rise in its value, for the years it counts as your home.

The CRA's principal residence page, modified February 5, 2026, says you must report the sale on Schedule 3, Capital Gains or Losses, and on Form T2091(IND) to designate the property. This applies even when the whole gain is exempt. The same page says you can designate only one home as your family's principal residence for each year from 1982 on.

When the house was your home for only some of the years you owned it, the exemption covers part of the gain. Paragraph 2.20 of the CRA's Income Tax Folio S1-F3-C2 gives the formula. The exempt share is:

• 1, plus the number of tax years you designate the home as your principal residence while you were resident in Canada,
• divided by the number of tax years you owned it.

The extra 1 is there for the year you move from one home to the next, when you own both. The folio says it applies only if you were resident in Canada in the year you bought the home.

Here is an example with numbers I chose only to show the arithmetic. An owner held a house for 11 tax years and designated it for 6 of them, because a second property was designated for the other 5. The exempt share is 1 plus 6, or 7, divided by 11. Seven elevenths of the gain is exempt, and four elevenths is a capital gain.

The land counts too, up to a limit. The CRA says the land that can count as part of a principal residence is usually limited to one half hectare, or 1.24 acres. Paragraph 2.35 of the folio says land above that can count in a year when a City or provincial rule required the larger lot. One half hectare is 5,000 square metres. A lot 15 metres wide would need to be more than 333 metres deep to pass that limit.

If you rented part of the house, or changed how you used it, the exemption can change. The guide to your options before you sell explains the CRA's rule on renting part of a home.

When part of the gain is taxable

If some years do not qualify, the taxable gain is worked out in three steps. The CRA's Capital Gains 2025 guide (T4037) sets them out: start with the sale price, subtract what the property cost you (the CRA calls this the adjusted cost base), and subtract the costs of selling. The result is the capital gain.

Only part of a capital gain goes into your income. The CRA's 2025 guide uses an inclusion rate of one half, so half the gain is taxable. A higher rate was proposed in Budget 2024. The Department of Finance's 2026 report on federal tax expenditures, modified May 22, 2026, says the government confirmed in Budget 2025 that it would not go ahead with that increase.

Costs that reduce a taxable gain

The CRA calls the costs of selling "outlays and expenses". Its 2025 guide lists fixing-up expenses, finders' fees, commissions, brokers' fees, surveyors' fees, legal fees, transfer taxes and advertising costs. You subtract them from the sale price. The guide says they cannot be used to reduce your other income.

On a sale to a builder the main costs are the real estate commission, your lawyer's fees, and a survey if the builder asks for a current one. Keep every invoice. The CRA's GST/HST rate page, modified April 1, 2025, lists the rate in Ontario as 13 percent, so ask your brokerage whether the commission it quotes includes HST.

The sellers overview explains the land transfer tax and the closing costs RECO tells sellers to plan for.

A home sold within a year

A short rule covers some sales. The CRA's principal residence page says a gain on a housing unit in Canada, including a rental property, that you owned or held for less than 365 consecutive days before the sale is treated as business income and is not a capital gain. The CRA calls such a home a flipped property. The exceptions are a property that was already inventory, and a sale made because of, or in expectation of, certain life events. The same page says a loss on a flipped property is treated as zero.

The CRA's Completing Schedule 3 page, modified February 5, 2026, lists the life events that are exceptions. They include the death of the owner or a related person, a related person joining the household, the breakdown of a marriage or common-law partnership after at least 90 days living apart, a threat to personal safety, a serious illness or disability, a move that brings the new home at least 40 kilometres closer to a new job or school, the involuntary loss of a job, insolvency, and the destruction or expropriation of the property.

The rule matters for an owner who bought in the last 365 days and gets a builder's offer before that time has passed.

HST on the sale of a house or a lot

HST is the sales tax on goods and services, and in some cases on real estate. The CRA's info sheet GI-004, Sales by Individuals of Owner-Occupied Homes, says sales of used owner-occupied homes are usually exempt, because the owner is not a builder. It also says the sale stays exempt if the home was used more than 50 percent for the owner's personal use. A home built or bought as a business can be taxable.

A lot split raises a separate question. A severance is a City approval that splits one lot into two or more legal lots, and the Committee of Adjustment guide explains how it works. The CRA's info sheet GI-003, Sales of Vacant Land by Individuals, says most sales of vacant land by individuals are exempt. It gives these rules:

1. If you split a parcel you have never split before into only two parts, the sale of either part is exempt.
2. If you split it into more than two parts, the sale of the parts is taxable.
3. A part sold to a relative, or to a former spouse or common-law partner, for their personal use is not taxable.
4. Land sold in the course of a business, or land that was capital property used mostly in a business, can be taxable.

GI-003 also says that when a sale includes a house, the CRA treats it as two sales: the house with the land needed for its use and enjoyment, and the rest of the land.

Some owners plan to build new homes on their lot themselves and sell or rent them. The CRA can then treat the owner as a builder for HST. The options guide explains the CRA's rule for a builder who rents out new homes.

When the builder pays over time

Some builders ask to pay part of the price later, for example after a City approval or a first phase of sales. When that happens, a rule called a reserve can spread any taxable gain over the years you are paid.

The CRA's Capital Gains 2025 guide says a reserve lets you delay part of the gain to the years you receive the rest of the money. You still work out the full gain in the year of sale, then subtract the reserve. The guide says the maximum period for most reserves is four years, so the whole gain is included in income over five years. You claim it on Form T2017. The guide lists cases where you cannot claim one, such as when you are not a resident of Canada at the end of the year, or when you sell to a corporation you control.

With a later payment, you depend on the builder to pay you after you no longer own the land. Ask your lawyer how the agreement protects that payment. The guide to reading a builder's offer covers deposits and conditions.

Selling while you live outside Canada

Some Toronto owners have moved abroad and still own the family house. The CRA's page on disposing of certain Canadian property says a non-resident seller must notify the CRA within 10 days of the sale, using Form T2062, and send the payment or security for the tax. The CRA then issues a certificate of compliance. If no certificate is issued, the buyer is entitled to hold back part of the price. Late notice carries a penalty of $25 a day, with a minimum of $100 and a maximum of $2,500.

The CRA page is dated June 27, 2023, so ask your lawyer and accountant for the current hold-back rate before closing.

Your mortgage

If a mortgage is still on the house, it is paid off from the sale money on closing. The Financial Consumer Agency of Canada's page on prepayment penalties says a penalty can apply when you pay back your whole mortgage before the end of its term, including when you sell. The penalty is usually the higher of three months' interest on what you owe or the interest rate differential, which compares your rate with a current rate. The agency says your lender must tell you how it works out the penalty. Ask your lender for the amount before you choose a closing date.

Questions to take to your accountant

• Was the house my principal residence for every year I owned it, and was any part of it rented?
• How many years should I designate on Form T2091(IND), and do I own another property that could use some of those years?
• If the builder pays part of the price later, can I claim a reserve, and how should the agreement show the payments?
• If I split my lot before I sell, is the sale of the new lot exempt from HST?
• Was I resident in Canada for every year I owned the house?

My work on a sale is the zoning review, the presentation to builders and the comparison of offers. The tax figures come from your accountant, and the contact page is the way to reach me for a review of your lot. Before you compare builders' prices, ask one more question: what will I keep from each offer after costs and tax?

Frequently asked questions

Do I pay capital gains tax when I sell my Toronto house to a builder?

If the house was your principal residence for every year you owned it, the gain is usually fully exempt, whoever buys it. You still report the sale on Schedule 3 and Form T2091(IND), according to the Canada Revenue Agency's principal residence page, modified February 5, 2026. If some years do not qualify, part of the gain is taxable. Ask your accountant to work out the share before you accept an offer.

How is the principal residence exemption calculated when I sell my house?

The exempt share of the gain is 1 plus the number of tax years you designate the home as your principal residence while resident in Canada, divided by the number of tax years you owned it. The Canada Revenue Agency's Income Tax Folio S1-F3-C2, paragraph 2.20, sets out this formula. The 1 is added only if you were resident in Canada in the year you bought the home.

Does the principal residence exemption cover my whole Toronto lot?

The principal residence exemption usually covers up to one half hectare of land, which is 1.24 acres. The Canada Revenue Agency says land above that counts only where you show it is needed to use and enjoy the home, for example where a City rule sets a larger minimum lot size. One half hectare is 5,000 square metres, so a lot 15 metres wide would need to be more than 333 metres deep to pass it.

What part of a capital gain is taxable in Canada?

Half of a capital gain is taxable for individuals under the rules the Canada Revenue Agency now applies. Its Capital Gains 2025 guide uses an inclusion rate of one half, and the Department of Finance's 2026 tax expenditure report says the government confirmed in Budget 2025 that it would not go ahead with the increase proposed in Budget 2024. Your accountant applies the rate for the year your sale closes.

Can I deduct real estate commission and legal fees from my capital gain?

You can deduct real estate commission and legal fees from the sale price when you work out a capital gain. The Canada Revenue Agency's Capital Gains 2025 guide calls these outlays and expenses, and lists commissions, brokers' fees, surveyors' fees, legal fees, transfer taxes, advertising costs and fixing-up expenses. These costs reduce the gain only. They cannot be deducted from your other income.

Is there HST on the sale of my house to a builder?

The sale of a used house you lived in is usually exempt from HST, whoever buys it. The Canada Revenue Agency's info sheet GI-004 says sales of used owner-occupied homes are usually exempt, because the owner is not a builder. A home bought or built as a business, or one used mostly for a business, can be taxable. Ask your accountant if either applies to you.

Is there HST if I sever my lot and sell the new lot to a builder?

If you split land you have never split before into only two parts, the sale of either part is exempt from HST, according to the Canada Revenue Agency's info sheet GI-003. A split into more than two parts makes the sale of the parts taxable, except a part sold to a relative for their personal use. Land sold in the course of a business can also be taxable.

What happens if I sell my house less than a year after I bought it?

A gain on a home in Canada that you owned for less than 365 days in a row is treated as business income, and the Canada Revenue Agency says it is not a capital gain. The CRA lists exceptions for life events, such as a death in the family, a serious illness, a marriage breakdown, a move for work or school, or the loss of a job. Ask your accountant before you sell.

Can I spread the capital gain if the builder pays me over several years?

If the builder pays part of the price in later years, you may be able to claim a reserve, which moves part of the taxable gain to the years you receive the money. The Canada Revenue Agency's Capital Gains 2025 guide says most reserves can be claimed for up to four years, so the whole gain is included over five years. You claim it on Form T2017.

What happens if I sell my Toronto house while living outside Canada?

If you are not a resident of Canada when you sell, you must notify the Canada Revenue Agency within 10 days of the sale, using Form T2062. If no certificate of compliance is issued, the buyer is entitled to hold back part of the price. Late notice costs $25 a day, with a minimum of $100 and a maximum of $2,500. Tell your lawyer early.

Will I pay a mortgage penalty if I sell my house before the term ends?

You may pay a prepayment penalty if you pay off your mortgage before the end of its term, including when you sell your home. The Financial Consumer Agency of Canada says the penalty is usually the higher of three months' interest on what you owe or the interest rate differential. Your lender must tell you how it works out the penalty, so ask for the amount early.

When should I talk to an accountant about selling my house to a builder?

Talk to an accountant before you accept an offer from a builder, and before you agree to the price structure or the closing date. The tax result can change with the years you lived in the house, any rental use, a lot split, payments spread over several years, or a move outside Canada. Bring your purchase papers, renovation receipts and the draft offer to that meeting.

Sources

1. Principal residence and other real estate. Canada Revenue Agency. Modified February 5, 2026. Accessed November 9, 2026.
2. Income Tax Folio S1-F3-C2, Principal Residence. Canada Revenue Agency. Modified January 30, 2024. Accessed November 9, 2026.
3. Completing Schedule 3. Canada Revenue Agency. Modified February 5, 2026. Accessed November 9, 2026.
4. Capital Gains 2025 (T4037). Canada Revenue Agency. T4037(E) Rev. 25. Accessed November 9, 2026.
5. Report on Federal Tax Expenditures: Concepts, Estimates and Evaluations 2026, part 2. Department of Finance Canada. Modified May 22, 2026. Accessed November 9, 2026.
6. GST/HST Info Sheet GI-003, Sales of Vacant Land by Individuals. Canada Revenue Agency. Info sheet August 2004, page dated October 13, 2026. Accessed November 9, 2026.
7. GST/HST Info Sheet GI-004, Sales by Individuals of Owner-Occupied Homes. Canada Revenue Agency. Info sheet August 2004, page dated October 13, 2026. Accessed November 9, 2026.
8. Disposing of or acquiring certain Canadian property. Canada Revenue Agency. Page dated June 27, 2023. Accessed November 9, 2026.
9. GST/HST calculator (and rates). Canada Revenue Agency. Modified April 1, 2025. Accessed November 9, 2026.
10. Mortgage fees: Prepayment penalties. Financial Consumer Agency of Canada. Page dated October 15, 2025. Accessed November 9, 2026.

Planning and development potential is property-specific and subject to zoning, approvals, site conditions, municipal review and other due diligence. This guide gives general information. For legal, tax or financial advice, ask your own lawyer and accountant.