Sold Your Toronto Home? Investment Guide for Downsizers (2026)

Question: Do I pay capital gains tax when I sell my principal residence in Ontario?

Answer: No - your principal residence is exempt from capital gains tax in Canada through the Principal Residence Exemption (PRE). If the home has been your primary residence for every year you owned it, the entire gain is tax-free. However, complications arise if: you rented part of it, you owned a second property during this time, or you're a non-resident. The exemption applies to ONE property per family unit per year, so if you owned a cottage simultaneously, you'll need to designate which property gets the exemption for which years.

Question: How much can I safely withdraw from my home sale proceeds each year?

Answer: The standard 'safe withdrawal rate' is 4% of your invested capital annually, adjusted for inflation. For example, $1 million in invested home sale proceeds could safely generate ~$40,000/year. However, this assumes a 30-year retirement horizon. If you're 55, plan for 40+ years and consider a more conservative 3.5% rate. Also factor in: Old Age Security (currently ~$8,500/year at 65), CPP (varies by work history), and any pension income. Many GTA downsizers find their home proceeds plus government benefits provide comfortable retirement income.

Question: Should I invest the full proceeds or buy a smaller property in cash?

Answer: This depends on your housing preferences and financial goals. Option A: Buy smaller property in cash (~$600K condo), invest remainder (~$800K from $1.4M sale) - provides stable housing, no mortgage stress, and $32K/year investment income. Option B: Rent (~$2,500/month = $30K/year), invest full proceeds (~$1.4M) - provides flexibility, no ownership headaches, and ~$56K/year investment income minus rent = $26K net. Most Ontario retirees prefer owning outright for stability, but renting can make financial sense in expensive markets.

Question: What's the best way to invest proceeds for retirement income?

Answer: For retirees or near-retirees converting home equity to income, a balanced approach works best: 1) Max TFSA first (tax-free income forever), 2) Consider RRSP if you have room and expect lower tax bracket in retirement, 3) For non-registered, focus on Canadian dividend stocks (eligible dividend tax credit), 4) Add some fixed income (GICs, bond ETFs) for stability, 5) Consider annuity for portion if you want guaranteed lifetime income. Avoid aggressive growth strategies - you're in wealth preservation mode, not accumulation.

Question: How long should I wait before investing my home sale proceeds?

Answer: Wait at least 30-60 days, but not longer than 90 days. Reasons to wait: emotional adjustment to major life change, time to develop comprehensive plan, avoiding impulsive decisions. Reasons NOT to wait too long: cash loses purchasing power to inflation (~3% annually), opportunity cost of sitting in low-interest savings, risk of 'analysis paralysis' and never investing. Park funds in a high-interest savings account (4-5% in 2026) while you plan, then invest systematically over 3-6 months.

Question: Should I gift some proceeds to my children for their home purchases?

Answer: This is a personal decision, but consider: 1) Gifts are tax-free in Canada - no gift tax for giver or receiver, 2) However, you can't 'ungift' - if you need the money later, it's gone, 3) The 'bank of mom and dad' can create family tension if done unequally, 4) Consider a loan structure with documentation rather than outright gift, 5) Don't gift so much that it compromises your own retirement security. A common approach: help with down payment (20-25% of child's purchase) rather than full purchase, maintaining most proceeds for your own retirement.