Should I Sell My Rental Property Before Retiring in Ontario?
Selling a rental property before or after retirement in Ontario has major tax and income implications that most people don't see coming. Marc Pineault, a retirement planner in London, Ontario, explains what to weigh before you decide.
By Marc Pineault, licensed retirement planner in London, Ontario
Published
Should I Sell My Rental Property Before Retiring in Ontario?
Owning a rental property heading into retirement can feel like a mixed blessing. On one hand, it is a real asset — something tangible you built over years. On the other, it comes with a tenant to manage, repairs to fund, and a tax bill that has been quietly growing alongside the property's value. Whether you should sell before you retire, or hold on through retirement, is one of the more consequential decisions you can make in the years before you stop working — and it rarely has a simple answer.
The Capital Gains Tax Reality in Ontario
A rental property does not qualify for the principal residence exemption. When you sell, the profit — what you receive minus your adjusted cost base, which includes your original purchase price plus capital improvements — is a capital gain. A portion of that gain is added to your taxable income for the year of the sale and taxed at your marginal rate.
What makes this tricky is that the capital gain does not arrive alone. It stacks on top of whatever else you earned that year: employment income, CPP, OAS, RRIF withdrawals. If you sell your rental property in the same calendar year you're still working, that combined income could push a large portion of the gain into the highest tax brackets. Timing the sale to fall in a lower-income year — often the first year or two after retirement — can meaningfully reduce the tax owed.
The exact inclusion rate for capital gains has been subject to federal budget changes in recent years. Confirm the current rules with a tax professional before you make any decisions, because the rate that applies to your gain matters.
How a Sale Can Trigger OAS Clawback
Here is a consequence many Ontarians miss entirely: a large capital gain can cause you to lose part of your Old Age Security. OAS payments are reduced when your net income exceeds a certain threshold — for 2026, that threshold sits around $93,000, and the clawback is 15 cents for every dollar above it.
If you sell a property that generates a $300,000 capital gain in a year when you already have $60,000 in other income, your net income for that year climbs well above the threshold. You will not feel the OAS reduction immediately — the clawback is calculated from the prior year's tax return and applied the following July through June. But the hit is real, and for some retirees it amounts to several thousand dollars of lost income.
The Case for Keeping the Property Into Retirement
Not every rental property should be sold. If yours is cash-flow positive, well-maintained, and relatively hands-off to manage, it can serve as a useful income stream in retirement that is not tied to market performance.
Rental income is taxed as regular income, not at the lower capital gains rate — but it can be offset by legitimate expenses: property taxes, insurance, repairs, and mortgage interest if a loan is still outstanding. For some retirees, drawing a modest rental income over many years is more tax-efficient than triggering one large gain in a single year.
The real question is the lifestyle cost. Managing a rental property takes time and energy. Vacancies, maintenance calls, and difficult tenants do not stop just because you retired. Some people find the income worth it; others decide that the mental freedom of being done with the property is worth more than the extra cash flow.
Fitting the Decision Into Your Full Retirement Income Plan
The rental property question cannot be answered in isolation. It connects to your RRSP and RRIF balances, your CPP start date, your OAS timing, and the overall shape of your retirement income over the next two or three decades.
For example, if you plan to draw down your RRSP in your early retirement years to reduce future RRIF minimums, adding a large capital gain on top of that strategy in the same window could be expensive. On the other hand, if there is a low-income gap between leaving work and when your government benefits begin, that window might be the most tax-efficient moment to sell.
What you do with the proceeds also matters. A sale that generates $500,000 in net cash changes your asset mix, your income options, and your estate — and those implications deserve as much thought as the tax bill itself.
Deciding whether to sell your rental property before retiring in Ontario is ultimately a question about the whole picture — tax, income, timing, and what you want your retirement to look like day to day. Marc Pineault is a retirement planner in London, Ontario who helps clients across southwestern Ontario think through exactly these kinds of decisions before they make them. If you are weighing your options, book a consultation with Marc to map out what the numbers actually look like for your situation.
This article is for educational purposes only and does not constitute personalized financial advice. Please consult a qualified financial planner before making any financial decisions.
Frequently asked questions
When you sell a rental property, your profit is a capital gain and a portion of it gets added to your taxable income for that year, where it is taxed at your marginal rate. In Ontario, combined federal and provincial tax on that included portion can range from roughly 20% to over 50% depending on how much other income you have that year.
Selling after you retire — once employment income has stopped — often means the capital gain lands in a lower-income year, which can reduce the tax rate applied to the gain. The first one or two years of retirement are often the lowest-income window, making them worth considering for the timing of a sale.
Yes, it can. The capital gain from a property sale increases your net income for that tax year, and if your total income exceeds the OAS clawback threshold, your OAS payments will be reduced the following year — by 15 cents for every dollar over the threshold.
You can transfer a rental property to a spouse at your original adjusted cost base, which defers the capital gain rather than eliminating it — the gain will be realized when the property is eventually sold. CRA attribution rules apply in some situations, so this strategy needs careful tax planning.
On the date of death, CRA treats your rental property as though it was sold at fair market value, and your estate owes tax on any capital gain. Strategies like a spousal rollover can defer this tax, but without planning, it can be a significant and unexpected hit for your heirs.
Marc Pineault
Retirement Planner in London, Ontario
I help families and business owners in London, Ontario build clear financial plans for retirement, taxes, and investments — then I manage it all so they can stop worrying and start living.
Learn more about me →Enjoyed this article?
Get the next one in your inbox. Financial planning tips from Marc Pineault — practical, Ontario-specific, no spam.
No spam. Unsubscribe anytime.