Capital Gains Tax in British Columbia: What to Know

Capital gains tax is the tax you pay on profit from selling property or investments. In simpler terms, this tax directly affects how much money you'll keep after selling your home.

In Canada, only a portion of your profit (currently 50%) gets added to your taxable income. This means if you sell an investment property and make $100,000 profit, only $50,000 gets taxed. The actual tax you pay depends on your income bracket. Higher earners pay a higher percentage on those profits.

The Principal Residence Exemption lets you sell your main home completely tax-free, which means capital gains tax becomes especially important for people with a second home or an income-earning property.

If you're getting ready to sell a home that may be eligible for capital gains tax, use this guide to estimate what you might owe and make a plan for reducing your burden.

For informational purposes only. Always consult with an attorney, tax, or financial advisor before proceeding with any real estate transaction.

5 Capital Gains Tax Tips

• Only 50% of your property profit (capital gains) is taxable in 2024-2025
• Your principal residence is exempt from capital gains tax (if you designate it properly)
• Spreading your property sales across different tax years can save you thousands
• Tracking all renovation costs can lower your tax bill significantly
• Legal fees from buying and selling count toward your adjusted cost base

What Is Capital Gains Tax (And Why It Matters to BC Property Owners)

Capital gains tax is a tax on your profit when you sell a property for more than you paid. In BC, where property values have soared in places like Vancouver, Kelowna, and Victoria, this tax can take a big chunk of your bottom line.

Here's how it works: You don't pay tax on the entire property value—just on your profit. The Canada Revenue Agency (CRA) determines how much profit you made by using something called the Adjusted Cost Base (ACB).

The ACB represents the total cost of acquiring and improving a property. If you sell your home for more than the ACB, you'll be eligible for capital gains tax.

Unlike your regular income tax, only part of your profit gets taxed. Right now, that's 50% of your gain. While there's been talk of increasing this for profits exceeding $250,000, the action was recently reversed.

Here's an example: You bought a property for $100,000. During your ownership, you made qualifying home improvements that cost a total of $50,000. Years later, you sold the property for $450,000. $450,000 - $100,000 - $50,000 = $300,000 of profit. Your taxable capital gain is 50% of that, so $150,000 will be added to your income for the year.

If you own multiple properties in BC, understanding capital gains tax isn't optional—it's essential for protecting your investment returns.

How BC Property Owners Pay Capital Gains Tax

Capital gains taxes in British Columbia are added to your marginal tax rate.

A marginal tax rate is the percentage of tax applied to your last dollar of taxable income. In a progressive tax system, income is divided into segments called tax brackets, each taxed at increasing rates.

This means that as your income increases, only the portion that falls into a higher bracket is taxed at the higher rate—not your entire income.

2024 tax brackets in British Columbia looked like this:

• 20.06% on the first $49,279 of taxable income
• 22.70% on income over $49,279 up to $98,560
• 28.20% on income over $98,560 up to $113,158
• 31.00% on income over $113,158 up to $137,407
• 38.29% on income over $137,407 up to $177,882
• 40.70% on income over $177,882 up to $186,306
• 44.02% on income over $186,306 up to $253,414
• 46.12% on income over $253,414 up to $259,829
• 49.80% on income over $259,829 up to $314,928
• 53.50% on income over $314,928

Your marginal tax rate depends on your total income for the year, including capital gains from real estate sales. The higher your income, the higher your tax rate on your total income.

For example, imagine you're living in Kelowna, earning $125,000 per year. Selling a property with a $300,000 profit would add $150,000 to your taxable income, pushing your total from $125,000 to $275,000.

• ($49,279 - $0) x 0.2006 = $9,885.37
• ($98,560 - $49,279) x 0.227 = $11,186.79
• ($113,158 - $98,560) x 0.282 = $4,116.64
• ($137,407 - $113,158) x 0.31 = $7,517.19
• ($177,882 - $137,407) x 0.3829 = $15,497.88
• ($186,306 - $177,882) x 0.407 = $3,428.57
• ($253,414 - $186,306) x 0.4402 = $29,540.94
• ($259,829 - $253,414) x 0.4612 = $2,958.60
• ($275,000 - $259,829) x 0.498 = $7,555.16

Your tax bill for $125,000 would be $29,034.97. At $275,000, it's $91,687.14. The total amount added to your tax bill is $62,652.17.

This is one reason why timing your sale is important. Being able to offset your capital gains with capital losses from other investments can potentially bring your annual income into a lower tax bracket.

How to Calculate Your Capital Gains When Selling BC Property

Figuring out your profit isn't as simple as "sale price minus purchase price." You can subtract more costs to lower your taxable gain.

Here's how to calculate capital gains on your property:

1. Start with your selling price (proceeds of disposition)
2. Subtract what you originally paid (actual or deemed cost)
3. Subtract all buying costs (legal fees, transfer taxes, etc.)
4. Subtract all selling costs (commissions, advertising costs, legal fees)
5. Subtract significant improvements (renovations, additions)

The result is your total capital gain. Your adjusted cost base includes your original purchase price plus all the expenses incurred when buying and improving the property.

Keep every receipt for property improvements! Those kitchen upgrades, bathroom renovations, and deck additions all reduce your taxable profit. Maintenance and repair costs don't count—only significant improvements.

BC property owners often miss thousands in deductions by forgetting about improvement costs. Don't make this mistake!

Your Principal Residence Is Tax-Free (But You Must Designate It Properly)

The biggest tax break in Canada is selling your main home tax-free. This "principal residence exemption" saves BC homeowners enormous amounts of tax. It's the most powerful way to avoid capital gains tax.

But if you own multiple properties in rental markets across British Columbia, you can only designate one as your principal residence for each year you own it. This creates planning opportunities for property owners.

For example, if you own a Vancouver condo and a vacation waterfront home in Kelowna, only one of them could be your primary residence at any given time. If you split your time at each place throughout the years, you can qualify for a partial exemption.

A partial principal residence exemption works by prorating the tax-free portion based on how many years you actually lived in the property compared to how many years you owned it.

So, if you owned the vacation home for 10 years but only designated it as your principal residence for 4 of those years, you'd get a 40% exemption.

A final word on exemptions: you MUST report the sale of your principal residence on your tax return, even though it's tax-free. Use Schedule 3 and Form T2091(IND) to claim the principal residence exemption. Failing to report it could trigger penalties from the Canada Revenue Agency.

Small Business Owners: The $1.25 Million Lifetime Capital Gains Exemption

Own a small business property in BC? You might qualify for the Lifetime Capital Gains Exemption (LCGE) of $1.25 million.

This powerful exemption lets qualified BC business owners, farmers, and fishers shield up to $1.25 million in lifetime capital gains from tax. That's up to $625,000 in tax savings!

To qualify, your property must be used primarily in an active business. The lifetime capital gains exemption doesn't apply to income from short-term rentals—they're considered investment income, not business income.

There's a capital gains deduction limit that applies to this exemption. Your spouse or common-law partner may also qualify for their exemption in some cases.

The rules are complex, so it's important to talk with a tax professional before counting on this exemption. However, for qualified BC business property owners, this is potentially the biggest tax break available.

Use Capital Losses to Offset Your BC Property Gains

Did one of your BC investments lose money? Those capital losses can offset your property gains and save you tax.

If you sell a property at a profit and sell investments at a loss in the same year, you can use those losses to reduce your taxable gain.

For example: You sell your Kelowna condo with a $100,000 profit but also sell stocks at a $20,000 loss. Your net capital gain is just $80,000, with only $40,000 taxable (at current rates).

If your losses exceed your gains, you'll have a net capital loss. You can carry these capital losses forward to future tax years or back to previous years. This flexibility helps you manage when you pay tax on BC property sales.

Smart BC investors time their gains and losses to minimize their tax bills. The key is to offset capital gains with capital losses whenever possible.

6 Ways to Reduce Capital Gains Tax When Selling BC Property

1. Track every renovation cost: Save receipts for all home improvements that increased home value. That new roof, updated kitchen, or bathroom renovation all increase your adjusted cost base and reduce your taxable gain.
2. Spread your property sales across tax years: Selling multiple properties? Don't sell them all in the same year. This keeps you in lower tax brackets and helps you pay capital gains tax at a lower rate.
3. Use the principal residence exemption strategically: If you have multiple properties, designate the one with the largest gain as your principal residence for a few years before selling if you're able.
4. Time your sale around retirement: Selling when your income is lower (like after retirement) can drop you into a lower marginal tax rate for your capital gains.
5. Consider a capital gain reserve: If you sell with payments spread over 5 years, you can also spread the realized capital gains over the same period.
6. Offset gains with investment losses: Sell underperforming investments in the same year as your property to offset capital gains with capital losses.

How to Report Your BC Property Sale

When you sell a BC property that's not your principal residence, you must report it on your tax return. Here's what to do:

1. Complete Schedule 3 of your tax return
2. Report the full selling price (proceeds of disposition)
3. Calculate your adjusted cost base (original price plus improvements)
4. Determine your profit (capital gain)
5. Apply the inclusion rate (currently 50%)
6. Add this amount to your taxable income

For investment property, you may also need to report investment income from rent you collected while owning it.

The Canada Revenue Agency sets the deadline at April 30, but don't leave it to the last minute. Gather all your receipts early, especially for property improvements that reduce your gain.

Missing the deadline can trigger penalties and interest. If you need more time, file on time with estimated numbers, then correct them later. The Income Tax Act is clear that you must report capital gains, even if you've offset them with losses.

BC Property Capital Gains Examples: Real Numbers

The examples below are based on verified Vancouver and Kelowna real estate market statistics. These are estimations of how much a home seller might pay. Always consult a tax professional before making any financial decisions.

Vancouver Investment Condo Example

• Purchased in 2010: $450,000
• Sold in 2024: $900,000
• Total capital gain: $450,000
• Taxable capital gains (50%): $225,000
• Tax for middle-income earner: ~$67,500
• Tax for high-income earner: ~$108,000

Kelowna Vacation Home Example

• Purchased in 2010: $537,000
• Sold in 2024: $813,974
• Capital gain: $276,974
• Taxable portion (50%): $138,487
• Tax for middle-income earner: ~$41,500
• Tax for high-income earner: ~$62,300

For informational purposes only. Always consult with an attorney, tax, or financial advisor before proceeding with any real estate transaction.

Plan Ahead to Save Thousands

Vacation homes can be a great investment, but capital gains tax might take a big bite out of your profits. However, with smart planning, you can keep more money in your pocket and reduce capital gains tax rate legally.

Track all your improvement costs to increase your adjusted cost base, time your sale strategically to manage your marginal tax rate, and consider working with a tax professional who specializes in BC real estate.

Understanding how the capital gains inclusion rate affects your total tax bill is essential. For property with large gains, the difference could be tens of thousands in additional income tax.

The right strategy can save you tens of thousands of dollars when selling your BC vacation home or investment property.

Have questions about your specific situation? Talking with a qualified tax professional who understands capital gains tax rules is your best next step.

Frequently Asked Questions

When do I need to pay capital gains tax?

You don't pay capital gains tax until you sell your property and realize capital gains. Increases in value while you own the property aren't taxed as they're unrealized gains.

Can I avoid capital gains tax by moving into my rental property?

Partially. If you convert your rental property to your principal residence, you'll still owe tax on the gains during the rental period, but future gains could be tax-free using the principal residence exemption.

What happens if I inherit a property in BC?

You inherit the property at its fair market value, which becomes your adjusted cost base. You'll only pay capital gains tax on increases in value after you inherit it.

If I reinvest my profit into another property, do I still pay tax?

Unlike some countries, Canada doesn't have a "like-kind exchange" rule that allows tax deferral when reinvesting in similar properties. However, deferred tax options are available in some reinvesting scenarios.

How do capital losses affect my tax situation?

If you have capital losses from other investments, you can use them to offset capital gains and reduce your tax bill. Net capital losses can be carried forward indefinitely or back up to three years.

Will Canada Increase Capital Gain Tax in 2026?

The Canadian govement planned to increase capital gains tax in 2026 to 66.67% of any profit over $250,000. However, the motion was cancelled in March 2025.