Does the Principal Residence Exemption Cover Land Over Half a Hectare in Canada?
This answer covers Canadian federal tax law, which applies in every province.
Usually only up to a point. The CRA generally accepts one-half hectare or less, including the area under the housing unit, as contributing to residential use. Land above that is generally not part of your principal residence unless it was necessary for the use and enjoyment of the home, for example because municipal minimum-lot or severance rules require it.
The home must still meet the basic test: a housing unit you own that you, or a spouse, common-law partner, former spouse or partner, or child, ordinarily inhabited in the year. Land used to earn income generally does not qualify. If you sell for land and building, the selling price must be split between land and building on Schedule 3. Any capital gain is proceeds minus adjusted cost base and selling costs, and half of it is taxable.
You report the sale on Schedule 3 and designate the property using Form T2091(IND). If you sell only part of a property, the whole property can be designated to shelter that partial sale, with the non-qualifying portion taxed separately. How this works depends on your facts, so confirm with a lawyer or accountant.
Key takeaways
- The CRA usually accepts one-half hectare or less, including the area under the housing unit, as part of the principal residence.
- Land above that is generally taxable unless it was necessary for the use and enjoyment of the home, for example because municipal minimum-lot or severance rules require it.
- If you sell for land and building, you split the selling price between land and building on Schedule 3, and half of any taxable gain is included in income.
- A loss on the sale of a home cannot be claimed, because a home is personal-use property.