Vacant Land Tax Issues
Carrying costs on vacant land, capital gain vs business income on sale, building a home on a lot, and GST/HST.
The short version
- Interest and property taxes on vacant land you hold for investment are deductible only up to the income the land earns. The rest is added to the land's cost, which reduces the gain when you sell.
- Selling land you held as an investment is usually a capital gain (half taxable). Buying to resell, subdivide or develop can make it business income (fully taxable).
- Land is never depreciable: no capital cost allowance.
- A vacant lot can't be your principal residence until there's a home on it that someone in your family lives in. Years before the house is built generally can't be sheltered.
- A sale of vacant land by an individual is often exempt from GST/HST, but not if it's part of a business, subdivided into more than two parcels, or in some other situations.
Vacant Land Tax Issues
Land has a reputation as the simple investment: buy it, wait, sell it. No tenants, no furnaces. The tax side is less simple. Vacant land is the one property where the carrying costs mostly can't be deducted each year, and where the line between investment and business is drawn by what you meant to do with it. Here's what to know before you buy the lot, and before you sell it.
Carrying Costs: Deduct or Add to Cost?
If land isn't used in a business or held mainly to earn income, interest on money borrowed to buy it and property taxes on it are deductible only up to any income the land produces (rent from a farmer, parking, a billboard). Anything above that is added to the land's cost.
| Example: building lot held for investment | Amount |
|---|---|
| Interest on the loan to buy it | $9,000 |
| Property tax | $2,400 |
| Income from the land (seasonal parking) | $1,200 |
| Deductible this year | $1,200 |
| Added to the land's cost | $10,200 |
The added cost isn't lost: it reduces the capital gain when you sell. Keep a running schedule of these amounts every year; you'll need it on the sale. Land used in an active business (a farm, a contractor's yard) isn't restricted this way.
What can I deduct on my land?
Describe the land, how you hold it, what it costs to carry and any income it earns. The assistant tells you what's deductible now, what gets added to cost, and whether a sale would likely be a capital gain or business income.
Selling Land: Capital Gain or Business Income?
| Points toward capital gain | Points toward business income |
|---|---|
| Bought as a long-term investment, a future home site or a recreational property | Bought to resell at a profit |
| Held for many years | Sold soon after buying, or after rezoning or servicing |
| No development work | Subdivided, serviced, rezoned or marketed in lots |
| Few property transactions | A pattern of buying and selling land, or a real estate or construction background |
The difference is large: a $200,000 gain adds $100,000 to income as a capital gain, and the full $200,000 as business income. See house flipping tax for how CRA weighs intention, and capital gains tax in Canada for the calculation.
Building a Home on Your Lot
A popular plan: buy a lot, build later, live in the house. For the principal residence exemption, the property must include a housing unit ordinarily inhabited by you or your family in the year. Years when the land was vacant, or the house was under construction and nobody lived in it, generally can't be designated. When you eventually sell, the gain is calculated over all the years of ownership, so part of it can be taxable. The plus-one in the formula softens this a little. See the principal residence exemption.
Building your own home? See the owner-built home rebate. In Ontario, the provincial owner-built HST rebate can be worth a lot too; see OntarioHSTRebates.ca.
Selling land, a cottage lot or a home you built?
Enter the purchase, the carrying costs you added to cost, any years you lived there and the sale price. The SmartFile works out the gain, the exempt share if any, and the forms.
GST/HST on Selling Land
A sale of vacant land by an individual is often exempt. It can be taxable when, for example, the land was used mainly in a commercial activity, you sell it in the course of a business, you subdivide it into more than two parcels, or you sever a lot from a residential property in some circumstances. Farmland and land sold to related persons have their own rules. Because 13% HST on a land price is a lot of money to get wrong, confirm the status before you sign; see the GST/HST guide.
Get your GST/HST set up right the first time
The GST/HST SmartFile runs both $30,000 tests on your sales, compares the quick method with the regular method, and fills in form GST74 if the quick method wins.
Other Points
- No CCA on land, ever. Clearing, levelling and access roads have their own treatment; ask before deducting.
- Land transfer tax and legal fees on purchase are added to the cost.
- Rental of the land (to a farmer, for storage) is rental income on form T776.
- Gifting land to family is a deemed sale at market value; see buying property with family for how family deals work.
- Non-residents selling Canadian land need a clearance certificate; see real estate tax in Canada.
Vacant Land Questions
Can I deduct interest and property tax on vacant land?
Only up to the income the land earns, if it is not used in a business or held mainly to earn income. The non-deductible part is added to the cost of the land and reduces the gain when you sell.
Is selling vacant land a capital gain?
Usually, if you held it as a long-term investment. If you bought it to resell, or subdivided and developed it, the profit can be business income.
Can a vacant lot be a principal residence?
Not for years when no housing unit on it was ordinarily inhabited by you or your family. Those years generally cannot be designated.
Is there GST/HST on the sale of vacant land?
A sale by an individual is often exempt, but it can be taxable if it is made in the course of a business, the land is subdivided into more than two parcels, or the land was used mainly in a commercial activity.
Can I claim CCA on land?
No. Land is not depreciable property.
Sources: CRA, Guide T4037 Capital Gains; Income Tax Folio S1-F3-C2, Principal Residence; Guide T4036. Checked October 2026. The carrying-cost rule is from subsection 18(2) of the Income Tax Act, summarized. GST/HST on land sales has many exceptions; we only list the common ones and are not sure how they apply to any particular sale.
Last reviewed October 4, 2026 against CRA and Government of Canada sources. How we check our facts.