Can I use the principal residence exemption on both my Ontario house and my cottage?
No, not for the same year. For 1982 and later years, a family can designate only one home as its principal residence for each year, which is the key limit when you own both a city home and a cottage. A cottage can still qualify on its own, because a seasonal home can be 'ordinarily inhabited' even if you live in it for only a short time in the year.
Designating a property is not automatic. The property must be a housing unit that you own alone or jointly, you or certain family members must have lived in it at some time during the year, and you must designate it. Land usually counts only up to half a hectare (1.24 acres) unless more is needed to use and enjoy the home.
If you sell, you report the sale and the designation on Schedule 3 and complete Form T2091(IND). If a property was not your principal residence for every year you owned it, only part of the gain is exempt. Which property to designate in which years depends on your facts, so confirm with a lawyer or accountant.
Key takeaways
- For 1982 and later years, a family can designate only one home as its principal residence for each year.
- A seasonal cottage can qualify as a principal residence, but a property owned mainly to earn income is generally not treated as ordinarily inhabited if you live in it for only a short time.
- A spouse or common-law partner who lived apart from you throughout the year under a judicial separation or written separation agreement is not part of your family unit for this limit.
- When you sell, you report the sale and designation on Schedule 3 and Form T2091(IND), and only part of the gain is exempt if the home was not your principal residence for every year you owned it.