Do you pay capital gains tax when you sell your house in Quebec?

Do you pay tax on the gain when you sell your house in Quebec?

If the house was solely your principal residence for every year you owned it, you do not pay tax on the gain. The Canada Revenue Agency says that when you sell your home, or when you are considered to have sold it, you may realize a capital gain, and that the principal residence exemption is why you usually do not pay tax on that gain in the case just described. If at any time the property was not your principal residence, or not solely your principal residence, you might not get the exemption on all of the gain you have to report (Principal residence).

A property qualifies for a year when it is a housing unit, a leasehold interest in one, or a share of a co-operative housing corporation acquired only to inhabit a unit the corporation owns; you own it alone or jointly; you, your current or former spouse or common-law partner, or any of your children lived in it at some time during the year; and you designate it. The Agency lists a house, a cottage, a condominium, an apartment in a duplex, a trailer, a mobile home and a houseboat. Paragraph 40(2)(b) of the Income Tax Act is the rule that reduces the gain (Income Tax Act, section 40). A capital gain, in the Agency’s 2025 guide, is what you receive above the adjusted cost base plus the outlays and expenses to sell. The adjusted cost base is usually the cost plus expenses to acquire the property, and capital expenditures such as additions and improvements. Maintenance and repair costs are not added to that base (T4037, Capital Gains – 2025). Because the home is personal-use property, a loss on the sale is not allowed.

Do you still have to report the sale if the gain is exempt?

Yes. For the 2016 tax year and later, the Agency allows the principal residence exemption only if you report the disposition and the designation on your return. Its page for a 2025 sale says to report the sale on Schedule 3, Capital Gains or Losses, and on Form T2091(IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust). You complete only page 1 of that form if the property was your principal residence for every year you owned it, or for every year except one (Form T2091(IND)). If you forget in the year of the sale, ask the Agency to amend that return. It can accept a late designation, and a penalty may apply.

The penalty, when a late designation is accepted, is the lesser of $8,000 and $100 for each complete month from the original due date to the date the request is complete (Penalty for accepting a late, amended or revoked election). Information Circular IC07-1R1 states the same amount under subsection 220(3.5), and it treats a designation under the definition of principal residence in section 54 as a prescribed election (IC07-1R1, Taxpayer Relief Provisions). The Agency’s 2016 questions page states the same lesser-of figures (Reporting the sale of your principal residence). Quebec has its own form. Revenu Québec says to complete TP-274-V, Designation of Property as a Principal Residence, check box 109 in Part A of Schedule G, and enclose the form and the schedule with the return for the year of the sale. If you do not send TP-274-V, the penalty is $100 per month, to a maximum of $5,000 (Designating a Property as a Principal Residence). The form is not sent on its own. It goes with the return and Schedule G (TP-274-V). Revenu Québec’s 2025 Schedule G gives the same instruction: box 109 in Part A (Schedule G, 2025).

How does the one-plus formula work?

The gain that remains is A minus (A times B divided by C) minus D. That is paragraph 40(2)(b). A is the gain before this paragraph. C is the number of taxation years ending after the acquisition date during which you owned the property, alone or with someone else. D is zero unless you, or your spouse or common-law partner, made the 22 February 1994 capital-gains election on Form T664 for a property last acquired before 23 February 1994. B is one plus the number of years ending after the acquisition date for which the property is your principal residence and during which you were resident in Canada, if you were resident in Canada during the year that includes the acquisition date. If you were not resident during that year, B is those years with no extra year. The folio says that for a disposition before 3 October 2016 the extra year was available even without residence in the year of acquisition, and that “during” a year means at any time in the year (Income Tax Folio S1-F3-C2, Principal Residence). The extra year is how the rules treat both homes as eligible in a year when you sell one and buy another, even though only one of them may be designated for that year.

This is an example, not a file. The gain A is $100,000. The property was owned for 10 years, so C is 10. It is designated for 4 of those years. The owner was resident in Canada in the year of acquisition, and no 1994 election was filed, so B is 5 and D is 0. The exempt part is $100,000 times 5 divided by 10, which is $50,000. The gain that remains is $50,000. What share of that remainder is included in income is the inclusion-rate question below. It is not tax payable. If the home was your principal residence for every year you owned it, or for every year but one, and the extra year applies, the Agency says you complete only page 1 of Form T2091(IND). Revenu Québec describes the exempt part as A times B divided by C, with B equal to the years designated plus 1, on its designation page.

Can one family designate two homes for the same year?

For 1982 and later years, no. The Agency says you can designate only one home as your family’s principal residence for each year. Section 54 of the Act says the same thing for a year after 1981: the property has to be designated, and no other property may have been designated for that year by you, by a spouse or common-law partner who was your spouse or partner throughout the year, by your child, or, in the case the section describes for a person who was not married, not in a common-law partnership and not 18 or older, by your mother, father, brother or sister (Income Tax Act, section 54). A spouse or common-law partner who lived apart from you throughout the year under a court order or a written separation agreement is outside that list for the year. A child who had a spouse or common-law partner during the year, or who was 18 or older, is also outside it. Revenu Québec states the same limit in its own words: one property for a given year, and only if you, your spouse, your former spouse or your child ordinarily used it as a residence that year, even for a short time.

A cottage and a house are two properties. The years designated for the cottage are not available again when the house is sold. For 1982 to 1992 the Agency’s page uses “spouse” rather than spouse and common-law partner, so common-law partners could designate different homes for those years. Same-sex partners were not common-law partners for this purpose before 2001, unless they elected to be treated as common-law partners for 1998, 1999 or 2000. Who must sign the deed if you are separating is a different question, answered in Can you sell a house during a separation or divorce in Quebec?.

When is part of the gain taxable?

Part of the gain is taxable when the home was not your principal residence for every year, and also when only part of it qualifies. The Agency says to split the selling price and the adjusted cost base between the part you used as your principal residence and the part you used to earn income, by square metres or by the number of rooms, as long as the split is reasonable, and to report only the gain on the income-producing part. Its own duplex example is on that page. This page does not repeat those figures. A plex where you live in one unit and rent another is that kind of split. The lease is a different file: the tenants stay, and the rules are in Can you sell a house with tenants in Quebec?. The Agency will still treat the whole property as a principal residence when three conditions are all met: the income-producing use is ancillary to the main use as a residence, there is no structural change, and no capital cost allowance is claimed. A home day care is the example it gives. A room used for work can fall under those three conditions. If one of them fails, the split is the rule.

A change in use can be a sale for tax purposes even when nobody buys the house. Subsection 45(1) deems you to have sold the property at fair market value, and to have bought it back at that value, when you start using it to earn income or you stop (Income Tax Act, section 45). The gain that relates to years it was your principal residence can still be exempt. Subsection 45(2) lets you elect, by a signed letter with the return for the year of the change, not to be treated as having started that income use. You cannot claim capital cost allowance while the election is in effect. You can designate the property for up to four years if you designate no other property and you are resident in Canada. The four years can run longer when you are away because your employer, or the employer of your spouse or common-law partner, wants the relocation, you are not related to that employer, you return while that employment continues or before the end of the following year, or you die during it, and the original home is at least 40 kilometres farther from the new workplace than the temporary home. Subsection 45(3) is the other direction, from income use back to a principal residence. The election postpones the deemed sale until you actually sell. It is not available if you, your spouse or common-law partner, or a trust under which either is a beneficiary, deducted capital cost allowance for a year after 1984 and on or before the change. You can designate up to four years before you occupy the home. The letter is due by the earlier of 90 days after the Agency asks and the filing due date for the year of the real sale. From 19 March 2019, the same elections can cover a partial change. Even without an election, the Agency usually sees no change in use of that part when the rental or business use is relatively small, there is no structural change, and no capital cost allowance is deducted. Revenu Québec says a federal subsection 45(2) election applies automatically for Quebec tax, and that without the election filed with the Agency there is no Quebec election. The rental income is still reported, and capital cost allowance is not claimed on the part the election covers (Changement d’usage).

Land is part of the residence only up to a point. The Agency says the land that counts is usually limited to half a hectare (1.24 acres), unless you can show you need more to use and enjoy the home. A municipal minimum lot size larger than half a hectare is the example it gives. Section 54 says the same thing: land over half a hectare is deemed not to have contributed to that use and enjoyment unless you establish that it was necessary. The folio adds that the excess has to be necessary, not merely desirable, and that pets or country living do not, by themselves, make the excess necessary.

What if you owned the house for fewer than 365 days?

Any gain on a housing unit in Canada, including a rental property, or on a right to acquire one, that you owned or held for less than 365 consecutive days before the disposition is deemed to be business income and not a capital gain. The Agency states two ways out: the property was already inventory, or the disposition happened because of, or in anticipation of, a listed life event. The events on its principal-residence page are the death of the taxpayer or a related person; a related person joining the household, or the taxpayer joining a related person’s household; the breakdown of a marriage or common-law partnership where the taxpayer had lived separate and apart for at least 90 days; a threat to the personal safety of the taxpayer or a related person; a serious disability or illness of the taxpayer or a related person; an eligible relocation of the taxpayer or their spouse or common-law partner, where the new home is at least 40 kilometres closer to the new work location or school; the involuntary end of the employment of the taxpayer or their spouse or common-law partner; the insolvency of the taxpayer; and the destruction or expropriation of the property. A loss from that business, if any, is deemed to be nil.

If that rule does not apply, the same page says the result can still be business income or a capital gain, depending on the facts. Business income goes on Form T2125. A capital gain goes on Schedule 3. The exemption on that page is the reason you usually do not pay tax on a gain from the sale. An amount the Agency deems not to be a capital gain sits outside that exemption. The rule describes the tax result of a disposition. It is general information about a sale that has happened.

What share of a capital gain is included in income?

Section 38 of the Income Tax Act, in the consolidation current to 30 September 2026, says a taxable capital gain is one-half of the capital gain from the disposition (Income Tax Act, section 38). The CRA’s 2025 guide uses the same one-half rate (T4037), and the CRA says the proposed increase to two-thirds was cancelled (What’s new for corporations). Revenu Québec’s designation page says that, in general, half (50 percent) of a capital gain on a disposition is taxable.

In the example above, the gain that remains is $50,000. One-half of that remainder, using the fraction in section 38, is $25,000 included in income. It is an illustration, not tax payable. A gain that the 365-day rule deems to be business income is not run through this fraction.

What happens on death, or if the seller does not live in Canada?

On death, the person is considered to have sold the house immediately before death, at fair market value, even though there was no sale. That deemed disposition can produce a capital gain, unless the property passes to a spouse or common-law partner, or another exception applies. A transfer to a surviving spouse or common-law partner who is resident in Canada at the death, or to a certain trust, may produce no gain on the final return. For that rollover, the property has to be locked in for that person no later than 36 months after the death, and the gain waits until that person sells or is deemed to sell. The legal representative can elect out, property by property, in the final return, and the proceeds are then fair market value. If the house was a principal residence, some or all of the gain may be exempt, and the final return still designates it on Schedule 3 and on Form T1255 even when the whole gain is exempt. The designation applies only until the date of death (Capital gains when someone dies). A sale by the estate after that date is the subject of How do you sell an inherited house in Quebec?. If a parent is alive and is still the owner, who may sign is in How do you sell a parent's house in Quebec?.

A person who does not reside in Canada, and who disposes of a house in Canada, notifies the Agency under section 116. The notice is due within 10 days of the disposition, or it can be filed for a proposed disposition, with Form T2062 where the property is taxable Canadian property held as capital property, plus payment or acceptable security. The certificate of compliance is Form T2064 for a proposed disposition and Form T2068 for an actual one. If no certificate is issued, the purchaser may have to pay a specified amount of tax for the vendor and may withhold 25 percent of the proceeds, or 50 percent on certain types of property, minus any certificate limit (Disposing of or acquiring certain Canadian property). Quebec has its own notice. A person who does not reside in Canada and who disposes of taxable Quebec property, such as an immovable in Quebec, notifies Revenu Québec within ten days of the actual disposition on form TP-1097. A proposed disposition can be notified as well, for example after the offer is signed. Missing the actual notice can bring a penalty of $25 a day, up to $2,500 (Obligations fiscales des non-résidents du Québec). The exemption itself counts only years of Canadian residence. If you were not resident in Canada for the whole time you owned the designated property, the Agency says to call 1-800-959-8281.

Who should confirm this before you sign?

An accountant, or a notary when the deed is the question, applies these rules to the years, the use of the house, and the returns. This page does not prepare Form T2091(IND), form TP-274 or a section 116 notice, and it does not say what a particular house will clear.

Bruce Malcolm buys houses himself on the Island of Montreal and the surrounding areas. He holds no broker, agent or appraiser licence, and he does not give tax advice. There is no inspection and no commission. The closing date is one you choose once the notary can sign. Sending the address starts a conversation (request an offer). The form does not commit you.