Selling property in Toronto: capital gains tax, seller fees and non-resident withholding

Capital gains taxation and exemptions

When disposing of real estate in Toronto, tax obligations are determined by property classification and holding periods under regulations enforced by the Canada Revenue Agency (CRA).

If the property served as the seller's primary residence for every year of ownership, the capital gain is fully exempt under the Principal Residence Exemption (PRE). However, the transaction must still be reported on Schedule 3 (Capital Gains) and Form T2091(IND) alongside the individual's annual T1 Income Tax Return. Failure to report forfeits the exemption and exposes the owner to late-filing penalties.

For investment properties, second homes or rental units, capital gains tax applies. Under standard Canadian tax rules in 2026, 50% of the net profit (sale price minus adjusted cost base and selling expenses) is included in the owner's taxable income and taxed at their applicable federal and provincial marginal rates.

Under Canada's residential anti-flipping rule, any property owned for less than 365 consecutive days prior to disposition is presumed to generate business income rather than a capital gain. Consequently, 100% of the net profit is subject to taxation at marginal income tax rates unless a qualifying life-event exemption applies (such as death, divorce or disability).

Non-resident sellers and Section 116 withholding

Non-resident sellers are subject to strict tax withholding procedures overseen by the CRA under Section 116 of the Income Tax Act.

To prevent tax avoidance, the buyer's lawyer is legally required to withhold 25% of the gross sale proceeds at closing (or 50% for rental properties subject to depreciation recapture). This money remains frozen in the buyer's lawyer's trust account until the CRA issues a Certificate of Compliance (Form T2062 or T2062A).

To secure the Certificate of Compliance, the non-resident seller must submit Form T2062 to the CRA within 10 days of closing. The CRA calculates the actual capital gains tax owed on the net profit. Once the estimated tax is paid or security is provided, the CRA issues the clearance certificate, permitting the buyer's legal counsel to release the remaining withheld funds to the seller. Processing times for Form T2062 routinely span three to six months.

Estate agency and legal costs

Selling property in Toronto incurs transaction expenses that reduce the net cash proceeds.

• Estate Agency Commissions: Commission fees in Ontario typically range between 3.5% and 5.0% of the gross property sale price. This fee is divided between the listing brokerage and the buyer's brokerage.
• Harmonised Sales Tax (HST): In Ontario, estate agency services are subject to 13% HST, which is added directly to the total commission invoice.
• Legal Fees: A real estate lawyer in Ontario handles title transfers, mortgage discharges, and closing adjustments. Legal fees for a standard property sale range from $1,000 to $2,000 CAD, plus disbursements and 13% HST.
• Mortgage Discharge and Prepayment Fees: If an existing mortgage is paid off before the term expires, Canadian financial institutions charge a discharge registration fee (approximately $200 to $400 CAD) plus prepayment penalties, which can equal three months of interest or an Interest Rate Differential (IRD) calculation.

Property transfers and ownership records are recorded electronically through the OnLand portal, managed by the Ontario Land Registry.

Repatriating funds from Canada

Once the sale completes, the seller's lawyer deposits the net proceeds into a Canadian legal trust account. For resident sellers, funds are transferred directly to a domestic bank account.

For foreign sellers repatriating capital across borders, Canadian financial institutions require proof of compliance with Canadian anti-money laundering legislation enforced by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). Large electronic transfers exceeding $10,000 CAD are automatically flagged to FINTRAC by Canadian banks. Non-resident sellers can transfer net proceeds abroad via international wire transfers executed by Canadian chartered banks or regulated non-bank foreign exchange specialists, provided all CRA Section 116 clearance certificates have been satisfied.