Capital Gains Inclusion Rate Change: Timing Your Canadian Property Sale to Buy Abroad

Last updated March 2026

Skip the research loop — Pre-vetted local agents · One-business-day match

Canada's capital gains inclusion rate increased from 50% to 66.7% for gains above $250,000 per year (individuals) as of June 25, 2024. If you're selling a Canadian investment property to fund a foreign purchase, this means more of your gain is taxable — but the first $250K annually still uses the 50% rate, and your principal residence remains fully exempt.

This guide covers who is affected, the dollar impact of the rate change, strategies for structuring the sale timing, how joint ownership changes the math, and how Mexican withholding tax integrates with Canadian capital gains tax.

Key Takeaways

Canada's capital gains inclusion rate increased from 50% to 66.7% for gains above $250,000 (individuals) and for all corporate gains, effective June 25, 2024.
The first $250,000 of annual capital gains for individuals still uses the 50% inclusion rate — this annual threshold resets each calendar year.
Your principal residence is fully exempt from capital gains regardless of the inclusion rate — this exemption is unchanged by the 2024 budget.
Investment properties, rental condos, and vacation properties you have not designated as principal residence are subject to the new 66.7% rate for gains above $250K.
The Lifetime Capital Gains Exemption (LCGE) for qualified small business shares and qualified farm property is not directly affected — real estate does not qualify for LCGE.
Spreading the sale of multiple Canadian properties across different tax years — if you have the flexibility — can keep annual gains below the $250,000 threshold and maintain the 50% rate.
For buyers planning to sell a Canadian investment property to fund a foreign purchase: the additional tax from the rate change on a typical gain is $4,000–$15,000 depending on the gain amount — meaningful but not prohibitive.
The Canada–Mexico tax treaty allows you to claim Mexican withholding tax as a foreign tax credit on your Canadian return — avoiding double taxation on the same gain.

Key Facts for Canadian Buyers

Old inclusion rate (pre-June 2024): 50% — half of gain was taxable income
New inclusion rate: 66.7% for gains above $250K (individuals); 66.7% all corp gains
Annual threshold for 50% rate: $250,000 per individual per year — resets January 1
Principal residence exemption: Unchanged — 100% exempt regardless of rate
Corporate gains: All corporate gains now at 66.7% — no $250K threshold
Effective date of change: June 25, 2024 — applies to dispositions on or after this date
Mexican withholding tax on property sale: 25% of gross or lower net-basis via RFC
Canadian top marginal rate (Ontario): ~53.5% — applied to taxable (included) portion of gain

The Change in Plain Language

Before June 25, 2024: if you had a capital gain of $400,000 on an investment property, 50% of that gain ($200,000) was included in your taxable income. At Ontario's top marginal rate of ~53.5%, that produced approximately $107,000 in tax.

After June 25, 2024: the same $400,000 gain has the first $250,000 included at 50% ($125,000) and the remaining $150,000 included at 66.7% ($100,050). Total included amount: $225,050. At the same marginal rate: approximately $120,402 in tax — roughly $13,400 more.

This is not a small amount, but it's also not a deal-breaker for a property transaction where the underlying gain is $400,000. The additional tax is approximately 3.4% of the gain — meaningful, but not a structural reason to avoid the sale.

The Principal Residence Exemption: Still Fully Intact

The most important thing to say first: if the property you are selling is your principal residence — the home you live in — the capital gains exemption for principal residences is completely unchanged. Your principal residence gain is 100% exempt from capital gains tax, regardless of the inclusion rate. The 2024 budget change has no effect on this exemption.

This matters because many Canadians who are considering buying abroad are contemplating selling their primary Canadian home — not an investment property. For these buyers, the inclusion rate change is irrelevant to their sale. The tax question they face is different: how the principal residence exemption interacts with their departure and whether a foreign property they buy affects their ability to claim the exemption for future years.

Who Is Actually Affected

The inclusion rate change affects Canadians selling:

Investment condos or rental properties they never designated as principal residence
Vacation properties in Canada (cottage, ski chalet) that were never the principal residence
Foreign properties (Mexican condo, Costa Rican land) on which a capital gain is realized
Shares in corporations holding real estate, if those shares have appreciated

For the typical Compass Abroad buyer profile — a homeowner in their 50s or 60s who owns their Canadian home as principal residence and is considering either buying abroad with a HELOC or selling a secondary Canadian property to fund the purchase — the rate change affects only the secondary property scenario.

Strategies for Minimizing the Inclusion Rate Impact

For sellers with flexibility on timing, several strategies reduce the impact:

Spread large gains across calendar years. If you have two Canadian investment properties each with $300,000 gains, selling them in different calendar years (year 1 and year 2) keeps each year's gain at the $250,000 threshold where the 50% rate still applies to the full gain plus $50,000 additional at 66.7%. Compare this to selling both in the same year: $600,000 total gain, with $350,000 subject to the 66.7% rate.
Use spousal joint ownership. If both spouses hold equal shares in a property, each reports their proportional gain. A $500,000 total gain becomes $250,000 each — both qualify for the full 50% rate. This requires proper joint title registration before the sale, not a last-minute restructuring.
Choose a low-income year. Capital gains add to total income for the year. If you have flexibility to sell in a year with lower employment income — a retirement year, a year between jobs, or a year with significant deductions — the effective rate on the included gain may be lower even if the inclusion percentage is the same.
Coordinate with RRSP room. A capital gain creates additional income but not RRSP contribution room. However, in the same year you sell, maximizing any existing RRSP room deduction reduces net income and thus the effective tax rate on the included gain.

How This Affects Buyers Who Already Own Foreign Property

If you own a Mexican or Central American property and are considering selling it, the new inclusion rate applies to any gain realized on or after June 25, 2024. The calculation uses the CAD-denominated cost base (what you paid in CAD at the acquisition-date exchange rate) versus the CAD-denominated proceeds (what you receive in CAD at the sale-date exchange rate).

An important wrinkle: if the CAD has weakened significantly since you bought, your CAD-denominated gain might be substantially higher than your USD-denominated gain — or you might show a CAD gain even if the USD price is flat. This is called a foreign currency gain and it's fully taxable. A property bought for $200,000 USD at $0.80 CAD/USD (cost base: $250,000 CAD) and sold for $200,000 USD at $0.72 CAD/USD (proceeds: $277,778 CAD) shows a $27,778 CAD capital gain despite no USD price movement. Keep exchange rate records from acquisition date.

Frequently Asked Questions

How much more tax do I pay on a $500,000 capital gain under the new rules?

Let's walk through the math using Ontario's top marginal rate of approximately 53.5% as an example. Under the old 50% inclusion rate, a $500,000 gain produced $250,000 of taxable income, generating approximately $133,750 in tax. Under the new rules: the first $250,000 of gain is still at 50% inclusion ($125,000 taxable income), but the remaining $250,000 is at 66.7% inclusion ($166,750 taxable income). Total taxable income from the gain: $291,750 — generating approximately $156,086 in tax. The difference: $22,336 more in tax. That is a real additional cost — not a reason to avoid the sale, but a reason to plan it carefully and consult a tax advisor.

Does the $250,000 threshold apply per property or per person per year?

Per person, per year. If you and your spouse each hold half of a jointly-owned investment property and sell it in a year with no other capital gains, a $600,000 total gain produces $300,000 per person. Each person's first $250,000 of their individual gain uses the 50% inclusion rate; only the remaining $50,000 per person triggers the 66.7% rate. Joint ownership between spouses effectively doubles the annual threshold that qualifies for 50% inclusion — this is why it is worth reviewing title structure with an accountant before selling. If the property is held entirely by one spouse, the gain is all theirs and only $250,000 of it benefits from the lower rate.

Is it worth selling my Canadian investment property now to beat further rate increases?

The rate change has already occurred — effective June 25, 2024. There is no announced further increase, though tax policy can always change. The current question is timing within the existing framework: if you have a large gain and flexibility on timing, strategies include spreading the sale across calendar years, joint ownership structure review, and coordination with other income in the disposition year to minimize the overall tax impact. From a purely financial standpoint, the additional tax from the inclusion rate change is real but usually less than the cost of selling prematurely before property values peak, or losing the remaining holding period appreciation.

What is my tax situation if I sell a Canadian property AND later sell a Mexican property in the same year?

Both gains would be included in the same year's income, and the $250,000 annual threshold for the 50% inclusion rate applies to your total annual capital gains combined. If you sell a Canadian rental property with a $300,000 gain and a Mexican condo with a $150,000 gain in the same year, your total capital gains are $450,000. The first $250,000 is included at 50% ($125,000 taxable); the remaining $200,000 is included at 66.7% ($133,400 taxable). Total taxable income from gains: $258,400. Timing the two dispositions across different calendar years — if feasible — keeps more of each gain below the $250,000 threshold.

How does the Canada-Mexico tax treaty interact with capital gains on selling a Mexican property?

The Canada-Mexico Income Tax Convention covers capital gains, and the basic principle is that Canada retains the right to tax its residents on worldwide income (including foreign capital gains), while Mexico withholds tax at source. The convention provides a foreign tax credit mechanism: Mexican withholding tax paid on the sale can be credited against your Canadian income tax liability on the same gain. In practice, the Mexican withholding is either 25% of gross proceeds or a lower net-gain rate (typically 25–35% of net gain via RFC documentation). Since Canada's top marginal rate on included gains is higher than the Mexican rate, you'll generally still owe some net Canadian tax — but the credit prevents paying tax twice on the same income.

I'm planning to sell my Toronto condo and buy in Mexico — what's the optimal tax sequence?

The tax-optimal sequence depends on whether the Toronto condo is your principal residence or an investment property, and how large the gains are on each property. If the Toronto condo is your principal residence: sell it whenever makes financial sense — the principal residence exemption fully eliminates the capital gain regardless of rate or amount. If it's an investment condo: consult your accountant about the income in the year you plan to sell. If you have minimal other income, a large capital gain in that year might still keep your total taxable income in a manageable bracket. If you also have employment income or other investments, strategically deferring the sale to a lower-income year could save 10–15% in tax on the gain.

Does the inclusion rate change affect the T1135 foreign property reporting?

No — T1135 is a reporting form, not a tax assessment. The inclusion rate change only affects how much of a capital gain is included as taxable income — it has no effect on the T1135 filing threshold ($100,000 cost) or the reporting requirements. You still report the foreign property on T1135 annually and pay tax on the gain when you sell (at whatever inclusion rate applies to the gain in that year). T1135 non-compliance penalties are completely separate from capital gains tax.

Selling Canadian property to fund an international purchase?

Get the tax picture right before you list. Compass Abroad connects you with cross-border tax specialists and vetted agents who understand the Canada-Mexico, Canada-Costa Rica, and Canada-Dominican Republic contexts.

Start the Conversation

Sources

Official sources for the rules, forms and programs referred to on this page.

Form T1135 — Foreign Income Verification Statement — canada.ca
RRSPs and related plans (incl. RRIFs) — canada.ca