Does Moving Into a Long-Term Care Home Affect My Principal Residence Exemption in Canada?
This answer covers Canadian federal tax law, which applies in every province.
It can, depending on the facts. A home qualifies as a principal residence for a year only if you, or a spouse, common-law partner, former spouse or partner, or child, ordinarily inhabited it in that year. Whether that happened is a question of fact, and even a short period of occupation in the year can be enough, though a brief occupancy generally will not qualify where the main reason for owning is to earn income.
If nobody qualifying ordinarily inhabits the home in a year, for example because the owner has moved out and it is rented or vacant, the property can still be treated as the principal residence for that year through a subsection 45(2) or 45(3) election. A 45(2) election lets you designate the home for up to four years while it earns income, if you do not designate another property and remain a Canadian resident, though that limit can be extended in certain employer-relocation cases. The election is not available if capital cost allowance was claimed on the property after 1984 and on or before the change in use.
How these rules apply to a move into care depends on your facts, so it is worth confirming with a lawyer or accountant.
Key takeaways
- A home qualifies for a year only if you or a spouse, common-law partner, former spouse or partner, or child ordinarily inhabited it in that year.
- Whether a home was ordinarily inhabited is a question of fact, and even a short period of occupation in the year can be enough, but a brief occupancy generally will not qualify where the main reason for owning is to earn income.
- If no qualifying person lives in the home in a year, a subsection 45(2) or 45(3) election may still let it be treated as your principal residence for that year.
- A 45(2) election lets you designate the home for up to four years while it earns income, but it is not available if capital cost allowance was claimed, and the four-year limit can be extended in certain employer-relocation cases.