Downsizing in retirement in Canada: Keeping more of what your home is worth

Authors: April Dorey Hartwig and Pam Katunar; Publisher: Heart Wealth Management Group of Raymond James Ltd.

Downsizing is one of the biggest transitions of retirement — and it is rarely just about square footage. Whether you are ready to trade a long-time family home for something simpler, or a change in health is making the decision for you or for a parent, the move carries both real emotion and a long list of financial decisions.

For many successful families across Greater Victoria, Vancouver Island, and Western Canada, downsizing is not simply a real estate decision. It is a retirement income, tax, care, and estate planning decision — all happening at once.

In our video, April Dorey Hartwig and Pam Katunar of Heart Wealth Management Group walk through what downsizing really involves — from getting your home market-ready and decluttering decades of memories, to turning the proceeds into tax-efficient income designed to support the retirement you have earned.

Watch April and Pam walk through it in the video below.

Below are a few of the things that often catch people off guard — the ones worth thinking about before you list the house, whether you are planning your own move or helping a parent plan theirs.

IT'S NOT ONLY ABOUT SPACE — IT'S ABOUT PURPOSE

The yard. The garage. The projects, the upkeep, the tinkering. From the outside, these can look like burdens you would be glad to shed. But for many people they are also routine, structure, and a genuine sense of purpose — a reason to get up in the morning.

Letting go of all of it at once can leave a quieter gap than anyone planned for. So the goal is not simply less — it is the right amount of less. Enough freedom and reduced stress to enjoy this stage of life, without losing what makes your days feel like your own.

It is a balance worth talking through as a family, early — so the move is a choice, not an accident.

WHEN DOWNSIZING BECOMES URGENT — HEALTH, MOBILITY, AND TIMING

For some families, downsizing is not on a five-year horizon. It becomes a decision made in weeks — after a fall, a diagnosis, or the realization that a parent can no longer safely manage stairs, maintenance, or daily routines at home.

When timing is compressed, every financial decision compresses with it — how to price and sell the home, where the proceeds should land when the sale closes, how much to keep liquid for care and unexpected costs, and how to manage taxes in a year when income or transactions may be unusually high.

This is also where powers of attorney, joint accounts, beneficiary designations, and family communication stop being paperwork and start mattering in real time. The families who navigate this transition best are usually the ones who started the conversation before they had to.

IT'S NOT JUST HOW MUCH INCOME — IT'S WHAT KIND

When people think about replacing the income or the sense of security that came from owning a paid-off home, they often reach first for high-dividend stocks, GICs, and bonds. Those choices can feel safe and familiar.

But in retirement, the type of income you generate can matter as much as the amount. Two issues surprise many retirees and their families:

• OAS Clawback. Above a certain level of net income — roughly the mid-$90,000s per person, and adjusted each year — the government begins to recover part of your Old Age Security. Different kinds of income can affect that line differently, and some “safe income” choices can move you over it faster than expected.
• B.C. Subsidized Long-Term Care. In British Columbia, publicly subsidized long-term care rates are generally based on after-tax income, subject to minimum and maximum rates — not simply on the value of your assets. How your retirement income is structured may affect what you pay for publicly subsidized care later on.

None of this is a reason to avoid income. It is a reason to be deliberate about how you build it. That is the after-tax thinking we bring to every plan: it is not just what you earn, it is what you keep.

Thresholds, tax rules, and care-cost rules change over time and vary by province, so it is always worth a conversation about your specific situation.

THE PRINCIPAL RESIDENCE EXEMPTION — TAX-FREE, BUT NOT AUTOMATIC

For most Canadians, the gain on the sale of a qualifying principal residence can be sheltered from capital gains tax through the principal residence exemption. It is one of the most valuable tax advantages available to Canadian homeowners.

But there are details worth knowing before you sell. The sale still has to be reported to the Canada Revenue Agency. And only one property per family unit can generally be designated as a principal residence for any given year.

That matters if you also own a cottage, a second home, a former rental, or property in another province or country. For couples, blended families, widows and widowers, and families with multiple properties, deciding which property receives the exemption can make a meaningful difference — and it is far easier to plan before you sell than to fix afterward.

TURNING YOUR HOME'S VALUE INTO LASTING INCOME

Downsizing often unlocks wealth that has been sitting in your walls for years. The real question is how to turn that home equity into tax-efficient income designed to last — while preserving flexibility for your lifestyle, your health needs, your family priorities, and your estate plan.

In practice, that means coordinating income across your registered accounts (RRSPs and RRIFs), your tax-free savings account (TFSA), your non-registered investments, your cash reserves, and any pension income. Each type of account is taxed differently. Each type of income can affect your tax return differently. And each decision can shape how much flexibility you have later.

The goal is not simply to invest the proceeds. It is to create a coordinated retirement income plan, so each dollar is held where it can work most efficiently for you. That coordination — built around your goals, your tax picture, your income needs, and your estate — is at the heart of our discretionary planning process.

A SIMPLER ESTATE, A CLEARER LEGACY

Fewer and simpler assets are easier for the people you love to manage one day. Downsizing is a natural moment to revisit your will, powers of attorney, executor choices, beneficiary designations, and estate intentions — especially if you are moving to a new province or your family situation has changed.

For some families, downsizing also creates an opportunity to help children or grandchildren now, while you are here to enjoy the difference it makes. That generosity should always be balanced against your own long-term security first — knowing what you can comfortably afford to give, what you may need for future care, and how gifts may affect your own retirement income and estate plan.

HOW HEART WEALTH CAN HELP

A home sale in retirement is often one of the largest liquidity events a family will experience. At Heart Wealth Management Group, we help clients think through the full picture before decisions become permanent — coordinating with your accountant, lawyer, and family along the way.

• Estimating the after-tax proceeds from the sale and modelling how they fit into your long-term income plan.
• Coordinating retirement income across RRIFs, TFSAs, non-registered accounts, pensions, and cash reserves for the most tax-efficient outcome.
• Stress-testing the impact of investment income on OAS and other income-tested programs.
• Planning for future care needs, liquidity, and the unexpected — including cross-border considerations for clients with U.S. ties.
• Reviewing estate planning considerations alongside your legal and tax professionals, and helping adult children and parents have productive planning conversations.

Our discretionary planning process — and our dual Canada–U.S. licensing — means we can act decisively on your behalf when the moment requires it, while keeping the long view in mind.

COMMON QUESTIONS ABOUT DOWNSIZING IN RETIREMENT

Is the sale of my home tax-free in Canada?

For most Canadians, yes — the gain on a qualifying principal residence can be sheltered from capital gains tax through the principal residence exemption. The sale must still be reported to the Canada Revenue Agency, and only one property per family unit can generally be designated as a principal residence for any given year. This becomes especially important if you also own a cottage, second home, former rental, or property outside Canada.

How much money do I need to downsize comfortably in retirement?

There is no single number. It depends on the net proceeds from your current home, the cost of your next home, your income needs, taxes, health considerations, family priorities, and how long the money may need to last. The more useful question is how the proceeds will be invested, taxed, and drawn over time — which is where a coordinated retirement income plan becomes essential.

Will downsizing affect my OAS or other government benefits?

It can. The sale of a qualifying principal residence is often sheltered from capital gains tax, but how the proceeds are invested afterward can affect your annual taxable income. That income may influence the Old Age Security recovery tax — commonly called the OAS clawback — and may also affect income-tested programs such as publicly subsidized long-term care in British Columbia. The structure of the income, not just the amount, matters.

What should I do with the proceeds after downsizing?

Before investing the proceeds, consider how the funds should be coordinated across your RRIF, TFSA, non-registered accounts, cash reserve, future care needs, and estate plan. The goal is not simply to generate income — it is to create tax-efficient, flexible income that supports your lifestyle while preserving options for the future.

Should I pay off my mortgage or invest the proceeds?

It depends on your interest rate, your tax bracket, your cash flow needs, your investment strategy, and whether the mortgage is attached to a principal residence, a rental property, or another asset. We model both paths so the decision is based on after-tax outcomes, risk, and liquidity — not assumptions.

How can downsizing affect long-term care costs in British Columbia?

In British Columbia, publicly subsidized long-term care rates are generally based on after-tax income, subject to minimum and maximum rates. That means the way retirement income is created from downsizing proceeds may matter — especially for retirees who may need care later. Planning ahead can help preserve flexibility and avoid unnecessary surprises.

When is the right time to talk to an advisor about downsizing?

Ideally, before the house is listed — and certainly before any of the proceeds are committed. Decisions about which property to designate as your principal residence, how to structure retirement income, how much liquidity to keep, and how to update your estate plan are far easier to make in the right order than to undo later.

LET'S TALK

Downsizing well takes both heart and expertise. If it is on your mind — for yourself, your spouse, or a parent — Pam and April would be glad to help you think it through.

This article is for general information only and is not personalized tax, legal, investment, or estate planning advice. Please consult your qualified professional advisors about your specific situation.