If you bought a property as an investment asset, you obviously had the intention to get as much money out of it as possible. Paying capital gains tax can obviously disrupt those plans somewhat. However, there are ways that smart investors can reduce the impact of the capital gains tax on their home sales.
Timing your sale
Timing your real estate sale at the right time can help reduce your capital gains tax. For example, if you have a fluctuating income, selling in a year you know you will have a lower income can allow you to pay capital gains in a lower tax bracket.
Offset capital gains with capital losses
If you have assets that would be considered capital losses if sold, you could consider offloading these at the same time as your real estate sale. This can allow you to offset your capital gains tax with the losses from other assets. Be careful, however, as attempting to claim superficial losses for the sake of deducting capital gains can get you flagged by the CRA.
Use your registered retirement savings plan (RRSP)
You could also consider holding your mortgage or income from a property sale in your RRSP if you have room for it. This is not technically tax-free, but rather tax-deferred, but can be helpful if you are trying to quickly build retirement funds. This is easier to do with smaller capital assets like stocks but is still possible for real estate holdings.
Lifetime capital gains exemption
There is a lifetime capital gains exemption that an individual may claim on eligible properties sold in their lifetime. This exemption applies primarily to people who hold qualified farming or fishing property as part of an active business. If they are eligible, they may claim up to $1,000,000 in deductions over their lifetime.
Gifted property
You also have the option of gifting property to a spouse or family member in order to reduce your taxes owed. For example, if you transfer capital property to a spouse who is in a lower tax bracket, they will pay a lower capital gains tax than you would have. You could also consider gifting capital assets that would be considered a loss to a family member. Gifts of capital property are taxed as if sold at fair market value, meaning you can claim the capital loss while keeping the property within your family.