Capital gains at sale

Sell your own home and, usually, the entire gain is tax-free: the principal residence exemption (PRE) shelters it. Rent out part of the house along the way, though, and the picture gets more complicated — and this is where the calculator deliberately takes the cautious road.

How a taxable gain is computed

For whatever share of the gain is taxable, the math follows CRA’s Guide T4037. The gain is the sale proceeds minus your adjusted cost base (ACB) and minus the costs of selling (realtor commissions, legal fees). The ACB isn’t just the purchase price: it also includes the one-time costs of acquiring the property — land transfer tax, legal fees on purchase — plus any capital improvements made along the way (current expenses like repairs and maintenance never count). Only 50% of the resulting gain — the inclusion rate — is added to your taxable income, where it is taxed at your marginal rate. (The 2024 proposal to raise the inclusion rate to two-thirds was cancelled in March 2025 and never became law.)

The rented share: the calculator’s conservative default

When part of a principal residence is used to earn rental income, CRA’s default position (Income Tax Folio S1-F3-C2, ¶2.57–2.58) is a deemed disposition of the rented portion: that share of the property — usually measured by area — steps outside the PRE, and its gain from that point on is taxable. The calculator always applies this treatment: whenever a rental suite is configured, the rented share of the gain is taxed at sale.

The exception the calculator does not claim for you

CRA has an administrative practice (¶2.59 of the same Folio) of leaving the full PRE intact despite the rental — but only when all three conditions hold: the income-producing use is ancillary to the home’s use as a residence; there has been no structural change to the property; and no capital cost allowance (CCA) has ever been claimed on it. Renting a spare room likely qualifies. A self-contained basement apartment likely does not — the Folio’s own examples list converting part of a house into a self-contained rental unit as exactly the kind of structural change that triggers the deemed disposition. Since March 19, 2019, a subsection 45(2) election can also defer the deemed disposition on a partial change in use. The calculator makes no attempt to guess whether your scenario qualifies for the exception or the election; it taxes the rented share by default and leaves those (potentially valuable) claims to you and your accountant. This is also why the engine never models CCA on the suite: claiming CCA forfeits the exception retroactively to when the rental began.