If I sell my investment property to raise cash for the purchase of a new home, I am required to pay capital gains tax (i.e. income tax on 50% of the gain amount.)

Is there a way to park this money somewhere tax-free until I am in a lower tax bracket? Assume that the profit is $100,000. Is it too big an amount to put into a RRSP or spousal RRSP?

Apparently there is some kind of exemption, but it only applies to farming or fishing land: http://www.taxtips.ca/smallbusiness/capitalgainsdeduction.htm

1 Answer 1


There is no way you can directly defer that capital gains tax. If you sell a property that is not your principal residence, it will be taxed in the year in which it was sold. It doesn't matter what you do with the proceeds - that tax will get paid. Now, if you had adequate RRSP contribution room you could certainly put some money there, and would get a deduction on your tax return that would offset this capital gains tax. For example, if you sold a property for $300K that was originally purchased for $200K, then you would incur capital gains tax of $50K (assuming you were not claiming CCA deductions). If you took $50K of your proceeds and put it in an RRSP, it would offset the tax you pay now, and essentially defer the tax on that $50K of income until you withdraw - hopefully at a lower marginal tax rate. A spousal RRSP would work the same, except it would be taxed at your spouse's marginal tax rate when withdrawn. Either way, you need to have sufficient contribution room in the RRSP for this to work. Check your Notice of Assessment to see how much room you have available.

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