When you sell a property in Quebec (other than your principal residence), you must pay tax on the capital gain realized. In 2026, the rules have evolved with a new inclusion rate for gains exceeding $250,000. Here is everything sellers need to know.
1. What Is a Real Estate Capital Gain?
A capital gain occurs when you sell a property for more than its acquisition cost (the adjusted cost base, or ACB). The difference between the selling price and the ACB constitutes the gross capital gain.
Capital gains mainly apply to:
- Rental properties (plexes, apartments)
- Cottages and secondary residences
- Vacant land
- Commercial properties
2. Principal Residence Exemption
Your principal residence is fully exempt from capital gains tax. To benefit from this exemption, the property must meet the following criteria:
- You lived there ordinarily during the years of ownership
- You designate it as your principal residence in your tax return (form T2091)
- Only one principal residence per family unit per year
Warning: If you designated a cottage as your principal residence for certain years, your home will not be covered for those same years. The exemption is attributed on a year-by-year basis.
3. Inclusion Rates (2026)
Only a portion of the capital gain is taxable. In 2026, the inclusion rate varies based on the gain amount:
| Capital Gain | Inclusion Rate | Taxable Portion |
|---|---|---|
| First $250,000 | 50% | $125,000 max |
| Above $250,000 | 66.67% (2/3) | Variable |
New in 2026: The 2/3 (66.67%) inclusion rate applies to the portion of capital gains exceeding $250,000 for individuals. Previously, the rate was 50% for the entire gain.
4. Deductible Expenses
Several expenses can be added to the ACB or deducted from the selling price, thereby reducing your taxable capital gain:
| Expense | Deductible? | Notes |
|---|---|---|
| Major renovations | Yes | Added to ACB (kitchen, bathroom, roof) |
| Broker commission | Yes | Deducted from selling price |
| Notary fees (sale) | Yes | Deducted from selling price |
| Legal fees | Yes | Lawyer, mediator, etc. |
| Appraisal fees | Yes | Certified appraiser for the sale |
| Routine maintenance | No | Painting, minor repairs |
| Property taxes | No | Except for rental properties |
Tip: Keep all your renovation receipts. They can significantly reduce your taxable capital gain at the time of sale.
5. Complete Calculation Example
Let's take the example of a rental property purchased for $300,000 and sold for $650,000:
| Step | Amount |
|---|---|
| Selling price | $650,000 |
| Less: Broker commission (5%) | - $32,500 |
| Less: Notary fees | - $2,000 |
| Net selling price | $615,500 |
| Purchase price (ACB) | $300,000 |
| Plus: Renovations (kitchen + roof) | + $45,000 |
| Adjusted ACB | $345,000 |
| Gross capital gain | $270,500 |
Tax Calculation (2026 Inclusion Rates)
| Detail | Amount |
|---|---|
| First $250,000 × 50% | $125,000 |
| Remaining $20,500 × 66.67% | $13,667 |
| Total taxable capital gain | $138,667 |
| Estimated tax (±50% combined marginal rate) | ±$69,334 |
6. Strategies to Minimize Tax
A. Designate the Right Principal Residence
If you own both a cottage and a house, analyze which property has the highest gain per year of ownership to maximize the exemption.
B. Maximize the ACB with Renovations
Every dollar of capitalizable renovation reduces your capital gain by one dollar. Keep all invoices and contracts.
C. Plan the Timing of the Sale
If possible, sell in a year when your other income is lower to benefit from a lower marginal tax rate.
D. Consult a Tax Specialist
An accountant or tax specialist in real estate can identify legal strategies to optimize your tax situation.
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