In most cases, you won’t pay capital gains tax when you sell your primary residence in Canada—as long as the home was your principal residence for every year you owned it and you properly report the sale on your tax return. However, tax can apply if the property wasn’t your principal residence for all years, if part of it was used to earn income (for example, a rental suite), if there was a change in use, if the lot is larger than the standard land limit, or if the home was bought and resold quickly. Please consult a qualified accountant or lawyer for specific advice.
Why this matters for Victoria downsizers and families
Downsizing in Victoria BC Real Estate—whether you’re moving from a long-time Oak Bay family home to a condo near Oak Bay Village, or from Broadmead to Saanich Peninsula Homes in Brentwood Bay or Sidney—often triggers questions like:
“Is my sale truly tax-free?”
“What if we had a mortgage helper suite?”
“What happens if we keep the house and rent it first?”
“Does my estate owe capital gains when I pass away?”
Let’s walk through the rules in plain language, with the situations we see most often in Victoria, Oak Bay, and Saanich.
What is “capital gains tax” in simple terms?
When you sell a property for more than it cost you (after eligible adjustments), the profit is generally a capital gain.
For a principal residence, Canada has an exemption that can eliminate or reduce that capital gain for income tax purposes—if you qualify and report properly.
What counts as a “principal residence” in Canada?
A home may qualify as your principal residence if, generally:
You own it (alone or jointly).
It is ordinarily inhabited by you, your spouse/common-law partner, or your children at some point during the year.
You designate it as your principal residence for the years you want covered (typically done when you sell).
One important limitation: only one property per family unit per year
If you own more than one property (for example, a Victoria condo plus a Salt Spring or Shawnigan property), you can generally designate only one as the principal residence for a given year.
Do you still have to report the sale if it’s tax-exempt?
Yes. Since the 2016 tax year, individuals must report the sale of a principal residence on their income tax return (generally via Schedule 3).
Practical implications:
Even if you owe $0 in tax, reporting is still required.
Missing the reporting step can create avoidable stress later.
Please consult a qualified accountant or lawyer for specific advice on your reporting requirements.
When might you owe capital gains on a “primary residence”?
This is where most confusion happens. The principal residence exemption can be reduced (or not apply) in several common scenarios.
1) You rented part of the home (suite, garden suite, or long-term room rental)
Many Victoria homes—especially in Fairfield, Fernwood, Oaklands, and parts of Saanich—have a suite.
Whether this affects the exemption depends on details like:
How much of the home was used to earn rental income
Whether structural changes were made to create a separate unit
Whether you claimed certain tax deductions that indicate a change in use
CRA guidance addresses situations where a home is used partly to earn income and how that can impact the property’s “nature” as a principal residence.
Downsizing tip: Before you list, ask your accountant to review:
Your history of rental income reporting
Any capital cost allowance (CCA) claims (often a key factor)
Please consult a qualified accountant or lawyer for specific advice.
2) You converted the home to a rental (a “change in use”)
A frequent plan is: “We’ll move to a condo, then rent the house for a year or two, then sell.”
That can trigger change-in-use rules, including potential “deemed disposition” considerations. CRA also describes an election (often referenced as subsection 45(2)) that may be available in some circumstances and requires specific steps (such as attaching a signed letter to your return).
What to do before you rent it out:
Talk to your accountant first (ideally before tenants move in)
Keep clean records of dates, use, and improvements
Please consult a qualified accountant or lawyer for specific advice.
3) You owned more than one property (and didn’t designate this one for all years)
If you split time between, say, a condo near Cook Street Village and a second home on the Peninsula, you may need to allocate which property is the principal residence for each year.
That can mean:
Full exemption for the chosen home for certain years
Partial taxable gain for years it wasn’t designated
Please consult a qualified accountant or lawyer for specific advice.
4) Your property includes more land than typically allowed
The land that can be included in the principal residence exemption is usually limited to one half hectare (about 1.24 acres), unless you can show that more land was necessary for the use and enjoyment of the home (for example, because of municipal lot-size rules when you purchased).
This sometimes comes up in:
Rural Saanich
Parts of the Highlands
Select Saanich Peninsula properties
5) You bought and sold quickly (anti-flipping rules may apply)
Canada has “flipped property” rules that can override typical treatment in certain quick-resale scenarios, and CRA’s principal residence guidance notes this interaction.
If your timeline is short (for any reason—health, family changes, job relocation), it’s worth getting tailored advice early.
Please consult a qualified accountant or lawyer for specific advice.
How is the taxable portion calculated if the exemption is partial?
At a high level, your advisor will look at:
Proceeds of sale (what you sold for)
Minus adjusted cost base (what you paid, plus certain additions)
Minus eligible selling costs
Then apply the principal residence exemption formula for the years it qualifies
Because the right approach depends heavily on your facts (and documentation), this is a “bring your paperwork, let’s be precise” situation.
Please consult a qualified accountant or lawyer for specific advice.
Common Victoria downsizing scenarios (and what to watch for)
Moving from a family home to a condo
If the home was your principal residence for all years and wasn’t used in a way that changes its tax character, you may be fully exempt.
Watch for:
Past suite income
Periods where the home was vacant and rented
Any “temporary rental” arrangements
Selling, then gifting money to children
Gifting cash is not the same as gifting real estate, and families often mix the two.
Watch for:
If you transfer ownership of real estate to family (not just cash), that can have tax and legal implications.
Estate planning can also involve probate and legal steps.
Please consult a qualified accountant or lawyer for specific advice.
Keeping the home and renting it (then selling later)
This is where change-in-use planning is critical.
Watch for:
Elections and deadlines
Record-keeping from the date you moved out
Insurance and tenancy considerations (separate from tax)
A practical pre-sale checklist for peace of mind
Before you list your Victoria, Oak Bay, or Saanich home, gather:
Purchase documents and dates
Renovation/improvement receipts (kitchen, roof, windows, suites)
A simple timeline of who lived there and when
Any rental agreements and rental-income records
Notes on home office use (if significant)
If you’re not sure what matters, that’s normal. We can help you organize the questions for your accountant so you get clear answers without spinning your wheels.
Important disclaimer on taxes and legal issues
This article is general information only and is not tax or legal advice. Tax rules can change and outcomes depend on your specific facts. Please consult a qualified accountant or lawyer for specific advice.
This post also does not create a real estate agency relationship; that only begins with a written agreement.
Helpful resources for your next step in Victoria
Considering a condo or patio home? DOWNSIZING GUIDE
Looking specifically in Oak Bay? OAK BAY LISTINGS
Exploring Broadmead, Cordova Bay, or Gordon Head? SAANICH LISTINGS
Prefer a quiet, walkable lifestyle near cafés and groceries (Cook Street Village, Oak Bay Village, Cadboro Bay)? [VICTORIA CONDO GUIDE]
Want to talk it through privately? CONTACT PAGE
Next Step
Thinking about selling your primary residence and downsizing in Victoria? Reach out to The Webbers (Pemberton Holmes Real Estate) for a no-pressure conversation.