Sale Proceeds, Taxes and Benefits

When you sell a home you have owned for many years, the cheque at closing can be the largest sum of money you have ever held at one time. It is natural to wonder how much of it the government will take, and whether it could affect your pension or other benefits. For most people selling the home they live in, the news is reassuring, but there are a few important points to understand.

This guide gives general information only. Everyone’s situation is different, so please confirm the details with an accountant, financial advisor or lawyer before you make decisions.

Is the sale of my home taxed?

In Canada, the gain on the sale of your principal residence is generally not taxed, because of the principal residence exemption. A principal residence is, in plain terms, the home you normally live in.

You still need to report the sale on your income tax return for the year you sell. This is easy to miss, especially if no tax is owing. Tell whoever prepares your tax return that you sold your home that year, so it is reported correctly.

If you have owned more than one property, such as a cottage, or rented out part of your home, speak with an accountant. In those situations the exemption may not cover the whole gain, and the rules can be complicated.

Will it affect my pension or benefits?

• The tax-free sale of a principal residence itself is not counted as income.
• However, the money you earn afterwards (interest, dividends, investment gains on the proceeds) usually is income, and can affect income-tested benefits such as the Guaranteed Income Supplement (GIS) and, at higher incomes, Old Age Security (OAS).
• How and where you invest the proceeds matters. TFSAs are one tool advisors often discuss, because withdrawals are not counted as income.

This matters most for people who currently receive GIS or other income-tested support. Even modest investment income from a large sum can change what you receive. A financial advisor can help you plan with this in mind.

Some provincial and municipal programs also depend on income, such as the Ontario Senior Homeowners’ Property Tax Grant and the City of Toronto’s relief programs for low-income seniors. If you move from owning to renting, some homeowner programs may no longer apply, while others may. See Property Tax Relief for Seniors and Accessibility and Renovation Tax Credits.

Planning for the proceeds

Before the money arrives, it helps to think about what it needs to do for you. Common goals include:

• Paying for your next home, whether that’s a condo, a rental, or a retirement residence
• Covering future care costs, such as help at home
• Keeping a comfortable emergency fund
• Producing steady income to add to your pensions
• Helping children or grandchildren, if you choose

A widow in a North York bungalow, for example, might plan to rent an apartment near her daughter. Her advisor can help her estimate how long the proceeds need to last, and how to invest them so she has steady income for rent and care.

Gifting money to children

Many people want to help their children with the proceeds. Canada has no gift tax, but gifts can raise questions later, for example if a child’s marriage breaks down. A short meeting with a lawyer about how to document a gift or loan is worth it.

Before giving a large amount, make sure you have kept enough for your own needs, including the possibility of care later in life. It is not selfish to look after yourself first. Your children would almost certainly want you to.

If you have more than one child, think about fairness and talk openly. Unequal gifts can cause hurt feelings later. See Working Together as Siblings.

Step by step: before and after the sale

1. Book an advisor early. Meet an accountant or financial advisor before you list your home.
2. Gather your records. Find the date you bought the home and the price paid, and note any years you rented part of it or owned another property.
3. Check your benefits. List any income-tested benefits you receive so your advisor can plan around them.
4. Decide where the money will go at closing. Your real estate lawyer will pay out the proceeds. Know in advance which account will receive them.
5. Report the sale. Make sure the sale is included on your tax return for that year.
6. Review your will and powers of attorney. A change in assets is a good time to check they still reflect your wishes. See Legal & Estate.

Common mistakes to avoid

• Forgetting to report the sale because you assume no tax is owing.
• Leaving a large sum sitting without a plan for months, or rushing into an investment because someone is pressuring you.
• Giving away too much too soon, before your own future needs are covered.
• Acting on advice from someone who profits from your decision without getting a second, independent opinion.

Frequently asked questions

I sold my house. Will I get a big tax bill?

If the home was your principal residence for all the years you owned it, the gain is generally not taxed. You still need to report the sale. An accountant can confirm this for your situation.

Does the sale itself reduce my Old Age Security?

The tax-free sale of your principal residence is not counted as income. It is the income you earn on the money afterwards that may affect income-tested benefits.

Is it safe to keep the money in my bank account for a while?

Many people keep the proceeds somewhere safe for a short time while they decide what to do. Ask your bank or advisor about deposit protection and about your options. Never hand money to anyone who contacts you out of the blue with an investment offer.

Where can I check official information?

The Canada Revenue Agency publishes information on the principal residence exemption and on federal benefits at canada.ca.

How Irina can help

Irina is not a tax advisor, but she has guided many older sellers through the sale process and knows the questions worth asking early. She can help you plan your timing so you have time to get proper advice before the money arrives. Contact Irina for a no-pressure conversation.

Related guides: Money Matters, Accessibility and Renovation Tax Credits, and Protecting Yourself.