Can I deduct real estate commission from taxes?
Can I deduct real estate commission from taxes? Read this Milton, ON tax playbook and keep more cash at closing.
Quick, Honest Answer for Milton Sellers
Yes — often. But “yes” depends on what kind of property you sold and how the sale is treated by the Canada Revenue Agency (CRA).
- If the home is your principal residence and you qualify for the principal residence exemption, the commission reduces your proceeds of sale but usually has no tax impact because the gain is exempt. You still must report the sale if required and keep records.
- If the property is an investment or rental, real estate commission is a selling expense that reduces your capital gain. That lowers taxes.
- If you’re flipping houses and the sale is business income, the commission is a business expense and is fully deductible against income.
Now let’s break this down for Milton, Ontario, and give you exactly what to do so you don’t overpay.
How the CRA treats real estate commission — simple rules
The CRA separates transactions into three buckets: principal residence, capital property (investment/rental), and inventory/business (flips).
- Principal residence
- If your property qualifies as your principal residence for every year you owned it, the capital gain is exempt under the principal residence exemption.
- Selling costs, like the real estate commission and legal fees, reduce your proceeds when calculating capital gain. If the gain is fully exempt, the reduction often doesn’t change taxes. Still: keep the invoice and report when required.
- Investment or rental property
- Commission is a selling expense. Selling expenses reduce proceeds of disposition, which lowers capital gain subject to tax.
- Example: Purchase price $300,000. Selling price $450,000. Commission 5% ($22,500). Proceeds for tax = $450,000 – $22,500 = $427,500. Capital gain = $427,500 – ACB (adjusted cost base) – any selling improvements. That smaller gain means lower tax.
- Flipping / business income
- If you regularly buy and sell houses to make a profit, the CRA can treat profits as business income, not capital gains.
- In that case the commission is a business expense and fully deductible against your income in the year of sale.
Ontario HST and commissions — what Milton sellers need to know
- Real estate commissions are subject to HST (13% in Ontario) as a service. The HST portion paid on commission is part of the overall invoice.
- For most individual sellers of used residential housing, the property sale itself is not a taxable supply for HST — but the commission is a taxable service.
- If you’re registered for GST/HST because your property activities are business-related, you may be able to claim Input Tax Credits (ITCs) for HST paid on commissions. Talk to your accountant.
Local note: Milton, Halton Region, and any local taxes
- Milton sellers face the same federal rules as the rest of Canada. There’s no special Milton-only carve out for commission deductibility.
- Keep in mind provincial costs like Ontario land transfer tax. Land transfer tax is not deductible for income tax purposes.
- Local markets matter for strategy. Milton’s rising demand and Halton Region growth can change whether a sale looks like an investment or business activity (frequency, intent, renovations). If you sell lots of properties in Milton, CRA could view you as a business.
How to report commissions on your Canadian tax return
- Principal residence: You must report the sale on Schedule 3 of your T1 and designate the property as a principal residence if required. Keep commission invoices. Even if the gain is exempt, reporting protects your position.
- Capital property (rental/investment): Report capital gain/loss on Schedule 3. Subtract selling expenses (commission, legal selling costs, advertising) from proceeds to calculate the gain.
- Business income (flips): Report full proceeds on your T1 (or corporate return if a corporation) and claim commission as an expense on the appropriate business form.
If you use an accountant in Milton or Halton Region, give them the commission invoice, legal fees, closing statement, and details of ownership and use (personal vs rental) for every year of ownership.
Practical examples — replace numbers with your facts
Example A — Rental Property
- Bought: $300,000 (ACB)
- Sold: $450,000
- Commission: 5% = $22,500
- Proceeds for tax: $450,000 – $22,500 = $427,500
- Capital gain: $427,500 – $300,000 = $127,500 (50% inclusion rate applies, so $63,750 taxable)
Result: Commission lowered your capital gain and saved tax.
Example B — Principal Residence
- Bought: $450,000
- Sold: $650,000
- Commission: $32,500 (5%)
- Proceeds for tax: $650,000 – $32,500 = $617,500
- If you qualify for principal residence exemption for all years, the capital gain is exempt — commission doesn’t increase tax savings beyond accurate reporting.
Example C — Flipping Business
- You flip homes in Milton every year. Sale is business income.
- Commission is a business deduction and directly reduces taxable income for the year.
Documentation checklist — what CRA will want to see
- Real estate commission invoice(s) showing agent details and HST charged.
- Copies of MLS advertisement or broker agreement (supports intent and selling activity).
- Statement of adjustments and closing documents.
- Legal fees invoice for closing.
- Records showing how the property was used (primary home vs rental) for each year owned.
- For rental properties: T776 forms and records of rental income and expenses.
Failing to keep clear documentation is the fastest way to trigger an audit. Keep everything for at least six years from the end of the relevant tax year.
Common mistakes Milton sellers make
- Assuming commission is never deductible because they think only capital costs count.
- Not reporting the sale of a principal residence when required (since 2016 CRA rules tightened reporting).
- Treating a repeated flipping business as capital gains — CRA may reassess it as business income.
- Forgetting HST implications when activities are business-related.
Local action plan — what to do today in Milton
- Save the commission invoice and closing documents in digital and physical form.
- Decide how CRA will view the sale: principal residence, capital property, or business. If unsure, consult a Milton-area tax pro.
- If rental/investment, prepare Schedule 3 and T776 (if rental) or speak to your accountant to compute ACB accurately.
- If flipping, treat the sale as business income and claim commission as an expense on your return.
- Call Tony Sousa for a local consultation if you want help positioning the sale to minimize tax legally and maximize after-tax proceeds.
Contact for Milton, ON real estate tax guidance
Tony Sousa — Local Milton Realtor & Market Expert
Email: tony@sousasells.ca
Phone: 416-477-2620
Website: https://www.sousasells.ca
Tony works with local accountants and CPAs in Halton Region. He can connect your sale to reliable tax professionals who know CRA rules and Ontario HST.
FAQ — clear answers to the questions Milton sellers ask
Q: Can I claim the real estate commission if I sell my home?
A: Yes, the commission reduces the proceeds of sale for tax purposes. If the home qualifies as your principal residence, the gain is usually exempt and there’s no tax to pay, but you should still keep records and report if required.
Q: Is the HST on the commission deductible?
A: If you’re a GST/HST registrant or the sale is business-related, you may claim Input Tax Credits for HST. For personal sellers, HST paid on commission is part of the invoice and factors into your selling costs.
Q: Does commission reduce capital gains on rental properties?
A: Yes. Commission and other selling costs are subtracted from proceeds when calculating capital gain.
Q: What if I flip houses in Milton — is commission deductible?
A: Yes. If the CRA treats your activity as a business, commissions are business expenses and fully deductible.
Q: Do I need to keep invoices and for how long?
A: Keep all documents for at least six years after the tax year to support your claim in case of CRA review.
Q: Who can I ask for help in Milton?
A: Contact Tony Sousa at tony@sousasells.ca or 416-477-2620 for local market insight and connections to tax professionals in Halton Region.
Final word: commission matters. It’s not magic, but if you document it and report correctly, real estate commission cuts your taxable gains or reduces business income. In Milton’s market, a few percentage points at closing can be thousands in tax saved. Plan before you sell — and get local help.
