How does the principal residence exemption work when I sell my home in Ontario?
You usually pay no tax on the gain when you sell a home that was your principal residence for every year you owned it. If it was not, only part of the gain is exempt, calculated as the gain × (designated years + 1) ÷ years owned.
A property qualifies for a year only if it is a housing unit, you own it alone or jointly, you or certain family members lived in it at some time during the year, and you designate it. A house, cottage, condominium, apartment, trailer, mobile home or houseboat can all qualify. For 1982 and later years, a family can designate only one home as its principal residence for each year. That matters if you own both a city home and a cottage.
When you sell, you report the sale and the designation on Schedule 3 (Capital Gains or Losses) and complete Form T2091(IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust). Separated spouses, rentals and years as a non-resident can change the result, so confirm your situation with a lawyer or accountant.
Key takeaways
- If the property was solely your principal residence for every year you owned it, you usually pay no tax on the gain.
- For 1982 and later years, a family can designate only one home as its principal residence for each year.
- You report the sale and designation on Schedule 3 and complete Form T2091(IND).
- A spouse who lived apart from you under a judicial separation or written separation agreement throughout the year is not part of your family unit for the one-home limit.