Key takeaways
- You are normally responsible for property tax for the days you owned the home, up to the closing date — subject to what your agreement says.
- The split is normally reflected as an adjustment on the statement of adjustments, calculated from the municipal information available at closing, and may need readjusting later.
- If you prepaid taxes past closing, the buyer pays you back their share; if you fell behind, you credit the buyer.
- Property tax is completely separate from capital gains tax — and even a fully exempt principal residence sale still has to be reported to the CRA.
How much property tax do I actually owe when I sell?
In the ordinary case you carry the property tax for the days you owned the home, up to the closing date, and the buyer carries it from there. Property tax is the yearly charge your municipality bills every homeowner to fund local services like roads, schools and garbage collection.
The idea is simple and fair: you pay for the time the home was yours, and the buyer pays for the time it becomes theirs. Two qualifications matter. First, the agreement of purchase and sale governs. Where it is silent, section 4 of Ontario’s Vendors and Purchasers Act supplies a default that taxes are adjusted as at the closing date, but almost every standard-form agreement sets out its own adjustments clause, and that clause prevails. Second, the adjustment is only as good as the information available on closing day. If the year’s final tax bill has not been issued, or a supplementary or omitted assessment lands later — common on new builds and after renovations — the figures used at closing may need to be readjusted afterward. Many agreements provide for that.
You don’t need to calculate this yourself or write a separate cheque to the city on closing. It gets sorted out as part of the closing math, on a document called the statement of adjustments.
What is the statement of adjustments and how does it split the tax?
The statement of adjustments is the closing “balance sheet” your lawyer and the buyer’s lawyer use to settle who owes what on the closing date. It takes the sale price and then adds or subtracts small amounts for things that need to be shared fairly between you and the buyer — property tax being one of the most common.
Here’s why property tax needs adjusting. Municipal tax is billed on its own schedule, which almost never lines up neatly with your closing date. You might have already paid taxes covering months after you’ve moved out, or you might still owe taxes for time you lived there. Either way, the numbers have to be trued up so each side pays only its fair share.
On closing, the statement of adjustments does exactly that:
- It figures out the tax that applies to your ownership period versus the buyer’s ownership period.
- It compares that against what has actually been paid to the municipality so far.
- It turns any difference into a credit to one side or the other, built right into the final amount that changes hands.
Because it is built into the closing figures, the property tax split is normally reflected as an adjustment rather than something you settle separately. It is worth being precise about what that means: the seller’s lawyer prepares the statement of adjustments and the buyer’s lawyer reviews it, both working from a tax certificate or other municipal information obtained for the property. It is a calculation done by people, from records, not an automatic process. Errors happen, which is why both lawyers check it. Note too that the municipality can pursue the current owner for unpaid taxes and holds a priority lien on the land regardless of who owned it when the taxes were levied — the apportionment between you and the buyer is a contract matter between the two of you, not something binding on the city.
Which way does the credit go — do I pay or get paid?
It depends on whether you were ahead or behind on your tax payments at closing. There are two scenarios, and the credit runs in opposite directions:
| Your situation at closing | What it means | Who credits whom |
|---|---|---|
| You prepaid taxes for time past the closing date | You’ve paid the municipality for days the buyer will own the home | The buyer reimburses you (credits you) for their share |
| You underpaid — taxes are still owing for time you owned the home | The buyer will end up covering tax for days you owned | You credit the buyer for your share |
In plain terms: if you paid too far ahead, you are credited; if you were behind, you effectively pay your remaining share by crediting the buyer. The intended outcome is that each side carries its own days, subject to the agreement and to the information available at closing.
Your lawyer works these figures out from the municipal tax information for the property and shows them on the statement of adjustments, so the correct amount is already reflected in your net proceeds. There’s nothing extra you need to do at the counter.
Is this the same as capital gains tax?
No — and it’s worth being clear, because the two get confused. Property tax and capital gains tax are entirely different things:
- Property tax is the ongoing municipal charge for owning the home, settled on the statement of adjustments as described above. It’s about the days you owned the property.
- Capital gains tax is a possible tax on the gain when you sell. The gain is not simply the sale price minus what you paid. It is the proceeds of disposition, less the adjusted cost base, less the costs of selling.
Briefly, on the calculation: the adjusted cost base is what you paid plus the costs of acquiring the property — legal fees, land transfer tax — plus capital improvements you made along the way. Routine maintenance and repairs do not count. From the proceeds you also deduct the costs of selling, such as the real estate commission and your legal fees. The good news for most sellers is the principal residence exemption. Your principal residence is, put simply, the home you or your family ordinarily lived in. Where a home qualifies as your principal residence for every year you owned it, the gain is generally exempt.
That exemption is generous, but it is not automatic on paper, and it is not always complete. Whether it fully applies depends on your circumstances — if part of the property earned income, if there was a change in use, if it was not your principal residence for every year you owned it, if it is held in a trust, or if you are a non-resident. This article is general information about Ontario closing practice, not tax advice. Anything beyond a straightforward principal residence sale should go to an accountant or a tax lawyer before you file.
Do I still have to tell the CRA if my sale is tax-free?
Yes. This is the part sellers most often miss. Even when the sale of your principal residence is fully exempt from capital gains tax, the Canada Revenue Agency (CRA) still requires you to report the sale on your tax return for the year you sold.
Reporting the sale is how you claim the principal residence exemption in the first place — it is a disclosure, not a bill. You report the date of acquisition, the proceeds and a description of the property on Schedule 3, with Form T2091 where required, for the year you sold. If you file late, the Canada Revenue Agency may accept a late designation but a penalty can apply: $100 for each complete month the designation is late, up to $8,000.
So the two-step takeaway is: the statement of adjustments handles your property tax split at closing, and your tax return handles reporting the sale to the CRA the following year. Keep your closing documents — you’ll want them when it’s time to file. For anything about your particular tax position, speak with a lawyer or accountant.