Can CRA audit a sale where I claimed the principal residence exemption?

Yes. CRA scrutinizes principal residence exemption (PRE) claims, particularly in markets where residential property values have risen significantly. The PRE shelters capital gains on the sale of a property that qualifies as your principal residence for the years it is designated — but not every property that a taxpayer sells automatically qualifies.

To claim the exemption, the property must have been "ordinarily inhabited" by you or a qualifying family member in the relevant years. A property you purchased, renovated briefly, and flipped without genuinely living in it does not qualify. CRA also watches for taxpayers who claim the exemption on multiple properties in the same year (only one property per family unit can be designated for any given year), and for frequent property sales suggesting a business of real estate flipping rather than personal use.

When you sell a property and claim the PRE, you are now required to report the sale on your return and designate the property — CRA eliminated the administrative exemption for reporting when all years of ownership are claimed. Failure to report the sale can result in CRA denying the exemption entirely. If CRA audits your PRE claim, provide evidence of ordinary habitation: utility bills, mail, driver's licence, school or medical records tied to the address.