How to Report Your Home Sale on Schedule 3 and Form T2091 in Canada

You sold your home and you expect to pay no tax because it was your principal residence. That is often the right outcome, but the exemption does not apply by itself. You have to report the sale and make the designation on your tax return.

This article walks you through the usual steps for an individual: why you report, which forms you use, how the boxes on Schedule 3 work, and what to do if you missed the designation. Forms and line numbers can change from year to year, so check the current version of the form before you file.

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

Why you report a sale that has no tax

Since the 2016 tax year, the sale (or deemed sale) of a principal residence must be reported on Schedule 3 of your T1 return, even if there is no gain or the whole gain is exempt. CRA allows the exemption only if the disposition and the designation are reported.

A home that qualifies is a housing unit you own, alone or jointly, that was ordinarily inhabited in the year by you, your spouse or common-law partner, a former spouse or partner, or a child. Whether a unit was ordinarily inhabited is a question of fact.

Step 1: Form T2091(IND) and how much of it you complete

Individuals (other than personal trusts) designate the property and calculate any gain on Form T2091(IND). Only page 1 needs completing if the property was your principal residence for all years you owned it, or all years except one.

If you made a capital gains election on Form T664 or T664 (Seniors) years ago, Form T2091(IND)-WS is the worksheet used to calculate a reduction because of that election.

Step 2: Part 1 of Schedule 3 and the box at line 17900

The designation is made in Part 1 of Schedule 3 at line 17900. The box you tick depends on how many years the home was your principal residence:

With box 3, you may need more than page 1 of Form T2091(IND), because page 1 alone is enough only when the home was your principal residence for all years you owned it, or all but one. The exempt part of the gain is worked out with a formula that compares one plus the number of years you designate with the number of years you owned the home, so part of the gain may not be exempt.

The "plus one" year

If a home was your principal residence for all years you owned it except one, the extra year built into the exemption formula means the whole gain is exempt. CRA explains this as letting you designate the sold home for the year of sale when you also bought another home that year. When one home is sold and another bought in the same year, both can be treated as principal residences for that year under the "one plus" rule.

There are limits. The extra year is not available if you were not a Canadian resident in the year you bought the new property. Years when the property was vacant land count in the number of years owned but not in the designated years, which reduces the exempt fraction. Only one property per family unit can be designated as a principal residence for each year from 1982 onward, and for 1993 and later years the family unit is you, your spouse or common-law partner and your unmarried children under 18. A spouse or common-law partner who was separated for the whole year under a court order or written separation agreement is not in the same family unit for that year, so each can designate a different home. For 1982 to 1992, the one-property rule applied only to spouses, so common-law partners could designate different homes.

Step 3: Reporting the sale in Part 2 and other lines

• Part 2 of Schedule 3 is where you report the sale itself.
• If you sold the property as land and building, the selling price must be split between land and building on Schedule 3.
• A gain on an income-producing portion goes on line 13800.
• If you sold more than one property in the year, the gain for each property is reported on line 15800.
• Where only part of the home was your principal residence and the rest earned income, the selling price and adjusted cost base are split by square metres or number of rooms, if the split is reasonable.

If there is a taxable gain, the capital gain is proceeds of disposition minus the adjusted cost base and the outlays and expenses of the sale, and half of it is taxable. A loss on a home cannot be claimed, because a home is personal-use property.

If you missed the designation: what to do next

If you forgot to designate the home in the year of sale, ask CRA to amend the return for that year. CRA may accept a late designation in certain circumstances, but a penalty may apply. The Minister may extend the time if the request is made within ten calendar years after the tax year ends. The late-election penalty is the lesser of $8,000 and $100 multiplied by the number of complete months between the due date and the date of the application.

• Gather your purchase and sale documents, including legal and commission costs.
• Confirm which years the home was your principal residence.
• Check whether another property is designated for your family unit in any of those years.
• Complete Form T2091(IND) and Schedule 3 with your T1 return.
• Speak to a lawyer or accountant if you rented part of the home, owned through a trust, or missed the designation.

Frequently asked questions