Can a Family Designate Only One Principal Residence Per Year in Canada?

You and your spouse or partner own two properties, perhaps a house and a cottage, and both have grown in value. You have heard that only one can be your principal residence, and you want to know whether that choice is permanent.

It is not. The rule applies year by year, and in many cases the years can be shared between the two properties. This article explains who counts as your family unit, how years are split, and what to watch for with co-owners.

This article covers Canadian federal tax law, which applies in every province.

The one-property rule

Only one property per family unit can be designated as a principal residence for each year from 1982 onward. The key words are "for each year". You are not choosing one home for life, you are choosing one home for every year you owned.

Spouses may split years between two homes by designating each home for different years, as long as no year is designated for two properties. When a home is sold and another bought in the same year, both are treated as principal residences for that year under the "one plus" rule.

Who is in your family unit

Common-law partners are in the same family unit for 1993 onward, and same-sex partners from 2001.

How splitting years works

Each property gets its own calculation when it is sold. The sheltered share compares B, which is one plus the number of years you designate that property, with C, the number of years you owned it. If a home was your principal residence for all years owned except one, the whole gain is exempt.

When you own two homes at the same time, every year you give to one is a year you cannot give to the other. The better split is not always obvious, because it depends on how long you owned each home and how much each gained. A lawyer or accountant can compare the options before you sell.

The designation is made on Schedule 3 in the year of sale, and Form T2091(IND) is used to designate the property and calculate any gain. Tick box 3 at line 17900 if the home was not the principal residence for every year you owned it.

Co-owners and other traps

• Co-ownership counts as ownership, whether joint tenancy, tenancy-in-common or another form. Each co-owner reports their own share on their own return and designates separately, and can designate only if no other property is designated for their family unit that year.
• A co-owner who does not live in the home, for example an adult child on title for a parent, cannot designate it unless the unit was ordinarily inhabited in the year by that co-owner or their spouse or partner, former spouse or partner, or child.
• The home must be ordinarily inhabited, which is a question of fact. Even a short period of occupation in the year can be enough, but where the main reason for owning is to earn income a brief stay generally will not qualify.
• Land of one-half hectare or less is usually accepted as part of the residence, while land above that is generally not unless it was necessary for use and enjoyment of the home.
• Years when you were not a Canadian resident, or when the property was vacant land, can reduce the sheltered share.

What to do next

• List every property you and your spouse or partner own or have owned, with purchase and sale dates.
• Mark which years each property was lived in by you, your spouse or partner, or your children.
• Confirm your family unit for each year, including any year of separation under a court order or written separation agreement.
• Check who is on title for each property, since each owner designates on their own return.
• Ask a lawyer or accountant to compare ways of splitting years before the first sale closes.
• File Schedule 3 and Form T2091(IND) with your return for the year of each sale.

Frequently asked questions