Yes. When you sell a rental property in Ontario, the profit counts as a capital gain, and the Canada Revenue Agency taxes 50 percent of it at your marginal income tax rate. There is no separate Ontario capital gains tax. The taxable half of your gain is added to your income for the year and taxed alongside your salary and everything else you earned.
Your gain is the difference between the sale price and your adjusted cost base, less the costs of selling. The adjusted cost base is what you originally paid plus your purchase expenses, such as legal fees and land transfer tax, plus the cost of any capital improvements like a new roof or a full kitchen renovation. Selling costs, including the commission and closing costs on a Toronto condo, reduce the gain further. Say you bought a unit for $500,000, invested $40,000 in renovations, and sold for $700,000 after $25,000 in commission and legal fees. Your gain is about $135,000, so roughly $67,500 gets added to your income.
A rental property does not qualify for the principal residence exemption. That exemption is what shelters most people from tax when they sell the home they actually live in. It is the reason your own house can sell tax free while an investment unit cannot.
One thing surprises a lot of owners at tax time. If you claimed capital cost allowance, which is the depreciation deduction some investors take against rental income each year, selling can trigger recapture. Recaptured capital cost allowance is taxed as ordinary income in full, not at the 50 percent capital gains rate. The gain and any recapture get reported on Schedule 3 and the rental forms filed with your return.
Change-in-use rules add another wrinkle if the property was once your home before you started renting it, since that switch can create a deemed sale on the date the use changed. The math shifts with your income, your holding period, and whether you are weighing a sale against keeping the unit rented, so a short talk with an accountant before you list usually pays for itself.
Related reading: Do You Pay Capital Gains Tax Selling Your Ontario Home?, Should You Sell or Rent Out Your Condo in Toronto?, and What Are the Costs of Selling a Condo in Toronto?
