When it comes to buying, selling, or investing in real estate, few topics spark more confusion—or anxiety—than taxes. And for anyone who owns a cottage, rental, recreational property, farmland, or raw land, capital gains tax sits at the very top of that list.
In a recent episode of The Country Club Podcast, host Diana Cassidy-Bush sat down with Ben Bryden, Chartered Professional Accountant at Wilkinson & Company, to break down the latest developments in capital gains legislation and the tax considerations homeowners should keep in mind heading into 2026.
The result? A clear and grounded conversation that cuts through the noise and offers practical guidance for sellers, investors, and families trying to make informed decisions in an ever-shifting tax landscape. Below, we’ve captured the most important insights from that discussion.
A Rollercoaster Few Years for Capital Gains Tax
Over the past two years, the rules around capital gains tax have been anything but stable. Originally, the 2024 federal budget announced a major change:
the inclusion rate—the portion of your capital gain added to your taxable income—was set to increase from 50% to two-thirds. This sent many property owners scrambling to sell properties before the June 2024 deadline.
But then?
The government delayed implementation, then delayed it again, and ultimately canceled the change entirely in March 2025.
Today, the inclusion rate remains 50%, restoring stability—but not necessarily trust—for property owners who rushed transactions based on shifting government announcements.
How Capital Gains Are Calculated
Capital gains are triggered when you sell an asset—like a cottage, rental, or land—for more than you paid for it. Your capital gain is calculated as:
Sale Price – (Purchase Price + Selling Costs + Eligible Capital Improvements)
You then include 50% of that gain as income in the year you sell. Your personal tax rate determines how much tax you ultimately pay. This makes timing essential. If you’re expecting a high-income year, selling the following year may reduce your tax bill.
The 12-Month “Flipping Rule” You Need to Know About
One of the most impactful tax changes from the last few years is the flipping rule.If you buy and sell a property within 12 months, the profit is automatically treated as business income, meaning:
●100% is taxable
●Intent doesn’t matter
●CRA assumes you’re flipping unless you qualify for a life-event exception
Exceptions include things like job relocation, divorce, death of a family member, or safety concerns. Otherwise, the rule applies automatically.
Owning More Than One Property? The Principal Residence Exemption Matters—A Lot
For families with a home and a cottage, or a primary residence and a rental, the Principal Residence Exemption (PRE) is a powerful tool. It allows you to eliminate capital gains on one property for the years you designate it as your principal residence. But you can’t apply it to more than one property per year.
Choosing which property to designate can have major tax implications, and the best choice isn’t always obvious. It depends on:
●How long you’ve owned each property
●Expected value growth
●The gain per year on each property
And when you use the PRE on one property, you lose the ability to apply it to the other for those same years.
Mixed-Use Properties: Don’t Get Caught Off Guard
If you rent out part of your home, run a business from it, or own a duplex, the tax rules get more complicated.
Here’s what property owners often miss:
●If more than 50% of your home is used for business, you may lose the PRE entirely
●Duplexes require a value split between personal use and rental use
●Renting a single room usually preserves the PRE—but not always
●Business use can affect how much of your gain is taxable upon sale
This is an area where professional tax advice is essential.
Changing a Property’s Use? You May Trigger a Taxable Event
One of the biggest—and least understood—tax surprises happens when a property’s use changes.
For example:
●You move out of your house and turn it into a rental
●You stop renting a property and move into it
●You convert farmland for a different purpose
In these cases, CRA may treat the transition as if you sold the property and immediately repurchased it. This is called a deemed disposition, and it can trigger a capital gain even though no money has changed hands.
Fortunately, a special election can prevent this—but you must file it on time, or face penalties.
Track Your Capital Improvements—They Matter
Not all home expenses are created equal. Some repairs maintain the home (like repainting or replacing shingles). These do not increase your cost base.
Capital improvements, however, can significantly reduce your capital gains at sale time. Examples include:
●Additions
●New garages or outbuildings
●Upgrading shingles to a steel roof
●Replacing laminate countertops with quartz or marble
There is no 7-year retention rule for documenting these improvements. You must keep the paperwork indefinitely.
Estate Planning: Don’t Forget the Tax Implications
When someone passes away, their property is treated as though it was sold at fair market value.
Here’s what that means:
●Transfers to a spouse occur tax-free
●Transfers to children trigger capital gains
●Estates with multiple properties may face liquidity issues
●Life insurance is often used to cover the tax burden
●Special rules apply to farm properties, including potential eligibility for the Lifetime Capital Gains Exemption if actively used in a farm business
These rules are nuanced, and early planning can prevent major stress for beneficiaries.
The Bottom Line: Plan Ahead and Talk to Your Professionals
Tax planning is most effective when done before a sale—not after. Real estate transactions are high-value events with long-term consequences. By speaking with your:
●Realtor
●Accountant
●Lawyer
…you can ensure you’re minimizing risk, maximizing your tax advantages, and avoiding unnecessarysurprises.
Final Thoughts
As we move toward 2026, the rules around capital gains are stable for now—but that doesn’t guarantee the future. The federal budget cycle has moved to the fall, meaning new changes could arise annually.
For homeowners, cottage owners, farmers, and investors, staying educated is more important than ever. Understanding how these rules affect your property decisions puts you in control—and helps you protect the equity you’ve worked hard to build.
If you have questions about your own real estate plans, be sure to connect with qualified professionals who can guide you through the specifics of your situation. And if you want more conversations like this, tune into The Country Club Podcast, where we explore the realities of living, playing, and investing beyond the city limits.