Can I Designate My Home as My Principal Residence if I Own Two Houses in Canada?

This answer covers Canadian federal tax law, which applies in every province.

Yes, you can own two houses, but only one property per family unit can be designated as your principal residence for each year from 1982 onward. For 1993 and later years, your family unit is you, your spouse or common-law partner and your unmarried children under 18. If you were separated for the whole year under a court order or written separation agreement, you and your spouse are not in the same family unit for that year, so each can designate a different home.

You choose by year. You can designate each home for different years, as long as no year is designated for two properties. Each designated property must generally be a housing unit you own that you, a spouse, common-law partner, former spouse, former common-law partner or child ordinarily inhabited in the year, unless a subsection 45(2) or 45(3) election covers that year. When you sell, the designation is made on Schedule 3 by ticking box 1 or box 3 at line 17900, and you calculate the gain on Form T2091(IND).

Which choice saves the most tax depends on how much each home gained in value and in which years, so an accountant can help you compare the options before you file.