Dividing property on a separation is usually tax-free at the time it happens, but the tax doesn’t disappear: it moves with the property to whoever ends up owning it. This guide covers the tax rules for the home and other real estate when spouses or common-law partners separate: the spousal rollover, the principal residence exemption after you move apart, transferring a rental property, the end of the attribution rules, and how support is taxed. The mortgage side (buyouts, refinancing and qualifying on one income) is covered in the mortgage after divorce or separation, and the rest of our guides to non-standard home buying are in the alternative mortgages hub.
Transferring the home to a spouse: the spousal rollover
When the home, or a share of it, moves from one spouse to the other as part of a separation, section 73(1) of the Income Tax Act applies automatically if both of you are resident in Canada:
| Rule | How it works |
|---|---|
| Price of the transfer | Treated as happening at the transferring spouse’s adjusted cost base (ACB), not at market value |
| Capital gain at the time | None: the transfer is tax-free |
| The receiving spouse’s cost | They take over the transferring spouse’s original ACB |
| Principal residence history | Carries over, so the receiving spouse can use the years the home qualified when they later sell |
| Land transfer tax | A provincial question: whether a transfer between spouses is taxed depends on the province |
| Item | Amount |
|---|---|
| The home’s original cost (ACB) | $550,000 |
| Market value at the separation | $950,000 |
| Gain built up so far | $400,000 |
| Tax when the home moves to the other spouse | $0 |
| The receiving spouse’s cost | $550,000 |
If the receiving spouse later sells for $1,100,000, their capital gain is $550,000, measured from the original cost rather than from the value at the separation. If the home was their principal residence for every year they are treated as owning it, the exemption can shelter that whole gain.
Electing out of the rollover
The rollover applies unless the transferring spouse elects, in their return for the year of the transfer, that it not apply. The property then moves at market value and the gain is taxed to the transferring spouse that year. That can make sense when:
| Situation | Why electing out may help |
|---|---|
| The transferring spouse has capital losses | The losses can absorb the gain |
| The transferring spouse has little other income that year | The gain is taxed at a lower marginal rate |
| The receiving spouse expects to sell a property with a large gain soon | The tax is split between two returns instead of falling on one |
A tax professional can model both outcomes before the election is made.
The principal residence exemption after you separate
Each family can designate only one home as its principal residence for a given year, and the separation changes who counts as family: Your family includes a person who was your spouse or common-law partner throughout the year, unless you were separated for the entire year under a court order or a written agreement. So once you have been separated under a court order or written agreement for a full calendar year, each of you can designate your own home for that year.
A home can also qualify for a year in which it was lived in by the owner’s former spouse or common-law partner, not just by the owner. A spouse who moves out but still owns part of the matrimonial home can therefore keep designating it for the years their former partner lives there, as long as they don’t designate another home for the same years. The general rules, including how the exemption is calculated and reported, are in the principal residence exemption.
| Situation | Designating the home |
|---|---|
| Both spouses still living there | One designation for the family each year |
| One spouse has moved out; the other lives there | Either owner can designate it, since the former spouse lives in it |
| Separated for a full year under an order or agreement, each with a home | Each can designate their own home for that year |
| The home is rented out after both leave | A change in use, with its own rules and elections |
Transferring a rental or investment property
The same spousal rollover applies to a rental property moved between spouses on separation, and the depreciation history moves with it:
| Rule | How it works |
|---|---|
| Capital gain at the transfer | None: the property moves at the transferring spouse’s cost |
| Recapture of capital cost allowance (CCA) | None at the transfer; it is deferred to the receiving spouse |
| The receiving spouse’s ACB | The transferring spouse’s original cost |
| Undepreciated capital cost (UCC) | Carries over, so the CCA already claimed can be recaptured on a later sale |
| Item | Amount |
|---|---|
| Rental property’s original cost | $350,000 |
| CCA claimed so far | $40,000 |
| UCC | $310,000 |
| Market value at the separation | $525,000 |
| Tax when it moves to the other spouse | $0 |
When the receiving spouse later sells for $525,000:
- capital gain: $525,000 − $350,000 = $175,000;
- CCA recapture, taxed as ordinary income: $40,000;
- amount included in income: $87,500 of the gain (50% inclusion) plus the $40,000 recapture, $127,500 in total.
The receiving spouse carries the whole tax bill that was deferred at the separation, which is worth reflecting in how the rest of the property is divided. More on selling a rental is in capital gains on rental property.
Attribution rules after separation
While spouses are together, income and capital gains on property one gives or lends to the other are generally taxed back to the giver. Separation changes that: While you and your spouse or partner live apart because the relationship broke down, income is not attributed, and capital gains are not if you both sign an election.
| Rule | While together | After a separation caused by the breakdown |
|---|---|---|
| Income on transferred property | Taxed to the spouse who transferred it | No longer attributed, for the period you live apart |
| Capital gains on transferred property | Taxed to the spouse who transferred it | No longer attributed, but only if you both file a joint election |
| Income on property given to a child under 18 | Taxed to the parent who gave it | Unchanged by the separation |
How support payments are taxed
| Payment | For the payer | For the recipient |
|---|---|---|
| Periodic spousal support | Deductible (lines 21999 and 22000) | Taxable (lines 12799 and 12800) |
| Lump-sum spousal support | Generally not deductible | Generally not taxable |
| Child support | Not deductible | Not taxable |
| Child and spousal support together | Payments count toward child support first; only the excess spousal amount is deductible | The child support portion is tax-free; the spousal portion is taxable |
For spousal support to be deductible, it generally has to be paid under a written agreement or court order, as periodic payments, to the former spouse (with limited exceptions for amounts paid to third parties), while you live apart. How lenders count support when you apply for a mortgage is covered in the mortgage after divorce or separation.
RRSPs, pensions and CPP
RRSPs, RRIFs and pension credits can usually be divided with no immediate tax, by direct transfer under a court order or separation agreement, and CPP credits earned while you lived together can be split between you. How each is divided, and the forms involved, are in RRSPs and pensions in a divorce.
Your tax return after separating
| Item | What changes |
|---|---|
| Marital status | You report your status on December 31. The CRA treats you as separated once you have lived apart because of the breakdown for at least 90 days, and the date of separation is the day you started living apart |
| GST/HST credit and Canada Child Benefit | Recalculated on your own income, so update your status with the CRA |
| Medical expenses and donations | Claimed on your own return, not combined with your former partner’s |
| Principal residence designation | Made separately by each of you on a sale |
Checklist: the tax side of dividing property
- The date of separation, which sets when the rules change
- Every property and its ACB (and UCC, for a rental)
- Whether the spousal rollover applies to each transfer, or an election out makes sense
- Which years each of you will designate the home as a principal residence
- The deferred tax each person takes on with each property, reflected in the division
- A joint election for capital gains attribution, if property was transferred during the relationship
- RRSP, pension and CPP credit transfers set out in the agreement or order
- Marital status updated with the CRA, and benefits recalculated
- Spousal support terms that meet the deductibility conditions
- A tax professional for any complex division
Sources
The figures and rules on this page come from these sources, last checked against them between September 23, 2026 and October 1, 2026. How we check facts.
- Canada Revenue Agency: Capital Gains – 2025
- Canada Revenue Agency: Principal residence
- Justice Laws (Canada): Income Tax Act
- Justice Laws (Canada): Income Tax Act
- Justice Laws (Canada): Income Tax Act