There’s no 1031 exchange in Canada

General information, not tax or legal advice. I’m not an accountant or a lawyer. Rules change, so check the numbers with yours before you act.

What a sale usually triggers

When you sell an investment property in Canada, you generally face:

• Capital gains tax on the increase in value. Half of the gain is taxable.
• Recapture of the capital cost allowance (depreciation) you claimed over the years, taxed as regular income.

Replacement property rules (section 44)

The Income Tax Act lets you defer the gain when you replace a property in two cases:

• Involuntary: the property was expropriated, destroyed or stolen.
• Voluntary: the property was a former business property, meaning real estate you used mainly to run your own business.

Rental property is excluded, according to CRA. So an investor selling a rented building to buy another one generally can’t use it. An owner-user moving their business to a new building often can.

The replacement has to be bought within CRA’s deadlines; for a voluntary sale, that’s generally by the later of the end of the first tax year after the year of sale or 12 months after that year ends. A similar rule can defer recapture.

Other tools people use

• Section 85 rollover: moving property into a company at its tax cost, often for restructuring or succession. BC Property Transfer Tax can still apply when land changes hands.
• Lifetime capital gains exemption: $1,275,000 for 2026, but only for qualified small business shares and qualified farm or fishing property. It doesn’t cover a building you own directly or a company that mainly holds rentals.
• Timing: spreading a sale over tax years, or a vendor take-back where the proceeds arrive over time, can affect when gains are reported. Your accountant can tell you whether a reserve applies.

What I do with this

I’m not a tax adviser. What I can do is get your accountant involved before we list or write an offer, because the structure can matter as much as the price.

Questions people ask

Is there a 1031 exchange in Canada?

No. Canada has no like-kind exchange. The closest rule is the replacement property rule in section 44 of the Income Tax Act, which mostly helps owners who use the property in their own business, and in cases like expropriation or fire.

Can I defer tax when I sell a rental building and buy another?

Generally not under the replacement property rules, because CRA excludes rental property from former business property. Ask your accountant about other options.

Does the lifetime capital gains exemption apply to commercial real estate?

Not when you own the building directly. It applies to qualified small business corporation shares and qualified farm or fishing property. It is $1,275,000 for 2026.