- You can designate only one home as your family's principal residence for each year, and the home must be owned, ordinarily inhabited by you or a family member, and designated.
- The CRA will only allow the exemption if the sale and the designation are reported on your tax return.
- Renting out part of the home, changing its use, or selling within 365 consecutive days of buying can limit or remove the exemption.
Selling a home in British Columbia often produces a gain, and many sellers hear that the gain is tax-free. That comes from the federal principal residence exemption, which is a Canada Revenue Agency (CRA) rule, not a BC one. It does not apply automatically in every case.
This article explains who generally qualifies, how the sale is reported, and the situations where only part of the gain is protected or the exemption is lost. Your own facts can change the result, so an accountant or lawyer can confirm how the rules apply to you.
This article covers the law of British Columbia.
Which homes and which owners qualify
For each year from 1982 on, you can designate only one home as your family's principal residence. The home must be owned, ordinarily inhabited by you or a family member, and designated. Houses, condos, apartments, trailers and houseboats can all qualify.
The land that counts toward your principal residence is generally limited to half a hectare (1.24 acres). More land may qualify if you can show you need it to use and enjoy your home.
If you were not a Canadian resident for the entire time you owned the home, contact the CRA, because this may reduce or eliminate the exemption.
Reporting the sale on your return
Since the 2016 tax year, the sale of a principal residence must be reported on Schedule 3 (Capital Gains) of your T1 return. You give the date of acquisition, the proceeds of disposition and a description of the property. The CRA will only allow the exemption if the sale and the designation are reported.
For sales in 2017 and later, Form T2091 (or T1255) must also be completed. Only page 1 is completed if the property was your principal residence for all, or all but one, of the years you owned it.
If you forget to designate, ask the CRA to amend the return, and the CRA may accept it in certain circumstances. A late designation carries a penalty of the lesser of $8,000 or $100 for each complete month from the original due date to the date the request was made.
When only part of the gain is exempt
Some situations split the home into exempt and taxable pieces. The table sets out the main ones.
| Situation | What generally happens |
|---|---|
| You change the home to income-producing use, such as rental | You are considered to have sold it at fair market value; gains for years it was your principal residence stay exempt, but gains for other years are reportable |
| Part of the home earns income | You must split the sale price and cost base between the parts, by square metres or rooms if reasonable |
| Income use is ancillary, with no structural change and no capital cost allowance claimed | The whole property keeps its principal residence status |
| Home office or home business | The same ancillary-use test applies; claiming capital cost allowance or making structural changes puts the exemption on that part at risk |
Flipping and losses
Property owned for less than 365 consecutive days before it is sold is deemed to be business income rather than a capital gain, so the principal residence exemption does not apply. Exceptions apply where the sale is due to a listed life event such as death, relationship breakdown or involuntary job termination.
The exemption works in only one direction. A loss on the sale of a home is not deductible, because a home is personal-use property.
What to do next
- Confirm which years the home was your family's principal residence, and whether another property was designated for any of those years.
- Note whether you ever rented out part of the home, claimed capital cost allowance, or made structural changes for income use.
- Check how long you owned the home before the sale.
- Collect the acquisition date, sale proceeds and a description of the property for Schedule 3.
- Ask an accountant or lawyer to confirm the reporting, especially if you were ever a non-resident or used the home for income.
Frequently asked questions
Do I have to report the sale of my home if it was my principal residence?
Yes. The sale must be reported on Schedule 3 (Capital Gains) of your T1 return, and the CRA will only allow the exemption if the sale and designation are reported.
Can I claim more than one principal residence?
Not for the same year. You can designate only one home as your family's principal residence for each year.
I forgot to designate my home. What can I do?
Ask the CRA to amend your return, and the CRA may accept it in certain circumstances. A late designation can carry a penalty of the lesser of $8,000 or $100 for each complete month from the original due date to the date the request was made.
Does having a home office affect the exemption?
It can. The same ancillary-use test applies, and claiming capital cost allowance or making structural changes puts the exemption on that part at risk.
Sources
- Canada Revenue Agency - Reporting the sale of your principal residence — canada.ca
- Canada Revenue Agency - Principal residence and other real estate — canada.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
This is a real estate question
A home purchase with us is from $1,900.88, tax included. Third-party fees are extra.