When couples separate or divorce, few topics cause more confusion than taxes—especially when selling the family home. The good news is that, in most cases, there are no immediate tax penalties for selling your principal residence in British Columbia. But timing, ownership structure, and property type can make a difference.
Here’s what you need to know about the tax implications of selling real estate during or after divorce in BC, explained in plain language.
In Canada, the Principal Residence Exemption (PRE) generally allows homeowners to sell their primary residence without paying capital gains tax. This applies whether the home is sold before, during, or after a divorce.
To qualify:
If both spouses jointly owned the home and it was their principal residence, the exemption usually covers the entire sale. No capital gains tax is triggered when proceeds are divided.
Here’s where things get more complicated. If you or your spouse own more than one property—such as a vacation home or rental—the Principal Residence Exemption can only apply to one at a time. Selling the secondary property may trigger capital gains tax on the appreciation in value.
During a divorce, one spouse may claim the principal residence exemption on the family home, while the other later claims it on a new home they purchase. However, the Canada Revenue Agency (CRA) will expect a clear timeline showing which property was each person’s principal residence during each year of ownership.
If you sell a property that was not your principal residence (for example, a rental, investment condo, or recreational property), you may owe capital gains tax on 50% of the profit. The CRA calculates this as:
Capital gain = selling price − adjusted cost base − selling expenses
In a divorce, if the property is sold and proceeds are split, each spouse reports their share of the capital gain on their individual tax return for that year.
Sometimes, one spouse keeps the family home through a buyout. When this happens, the property is transferred into one name only. Under Canada’s Income Tax Act, this transfer can occur at cost base—meaning it’s not considered a taxable event if done under a legal separation or divorce agreement.
In other words, no capital gain is triggered at the time of transfer. However, future sales by the spouse who keeps the home will be fully taxable if the property is no longer their principal residence.
According to the CRA, both spouses can continue to claim the principal residence exemption on the same property for the year they separate—provided neither has claimed another property that year. After separation, however, only one person can designate it per year.
Example: If you separated in May 2024 and sold the home in early 2025, you could both claim the exemption for 2024. For 2025, only the spouse who owned and lived in the property after separation can claim it.
During divorce, your family lawyer and accountant should coordinate to ensure the sale or transfer of real estate is structured properly. This avoids triggering unnecessary tax and ensures both parties file correctly with CRA.
Realtors like our team can provide accurate sale records, closing statements, and valuation documentation to support your accountant’s filings.
Even if the entire gain is exempt, you must report the sale of your principal residence on your tax return (Schedule 3) for the year of sale. CRA introduced this requirement in 2016. Failing to report can result in penalties or reassessment later, even if no tax was owed.
You’ll need to provide:
If the family home is registered in only one spouse’s name, the other may still have a legal claim to its value under the Family Law Act. The sale or transfer can still qualify for the principal residence exemption as long as it was the shared marital home. Legal ownership doesn’t override CRA rules about family-unit designation.
While most BC homeowners won’t owe income tax on selling their principal residence, there are still costs to plan for:
These are deducted before splitting proceeds or calculating buyout amounts.
In some cases, when to sell can make a difference. If you expect one spouse to purchase a new home shortly after separation, it’s best to clarify who will claim the principal residence exemption each year. Coordination between your realtor, lawyer, and accountant ensures neither party unintentionally loses eligibility.
In most BC divorces, selling the family home does not trigger capital gains tax thanks to the principal residence exemption. Still, details matter—especially with multiple properties, investment real estate, or mid-year separations. Getting early advice from your legal and tax professionals prevents costly mistakes later.
At Mansour Real Estate Group, we help clients coordinate smooth property sales during divorce, ensuring every step—from valuation to closing—is aligned with both legal and tax requirements. Reach out for a private consultation to discuss your next step with confidence.
The Mansour Real Estate Group, led by Mohamed Mansour, MBA and Associate Broker, is one of the Top 1% real estate teams in the Fraser Valley and a trusted authority in divorce, estate, and family property sales. With over 20 years of experience and more than $750 million in transactions, we deliver exceptional results with professionalism and compassion across Surrey, Langley, Delta, White Rock, and Abbotsford.
Address 15595 24 Avenue, Surrey, BC, V4P 1H5
