Does the Exemption Apply to a Condo, Mobile Home or Houseboat in Canada?

Not everyone lives in a detached house. Condo owners, co-op members, people in mobile homes and people on houseboats all want to know whether the principal residence exemption covers them. The Income Tax Act speaks of a housing unit rather than a house, which is broader than it first sounds.

This article sets out what the definition says and the practical points that matter for non-traditional homes. For an unusual dwelling, the details count, so confirm with a tax professional.

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

What the definition covers

Under section 54 of the Income Tax Act, a principal residence can be a housing unit, or a leasehold interest or co-op share giving the right to inhabit a housing unit, owned by the taxpayer alone or jointly with another person or otherwise. It must be ordinarily inhabited in the year by the taxpayer or a spouse, common-law partner, former spouse or partner, or child.

That wording is why condo units, co-op shares and leasehold interests can qualify. For a mobile home, houseboat or similar dwelling, the question is whether it is a housing unit that you own, and the answer depends on the facts.

Ownership and occupancy

If you own with others, each co-owner reports their own share and designates separately.

Land, rentals and home offices

Land of one-half hectare or less, including the area under the housing unit, is usually accepted as contributing to residential use. Land above that is generally not part of the principal residence unless it was necessary for use and enjoyment as a residence, for example because municipal minimum-lot or severance rules require it. Land used to earn income generally does not qualify.

If you rent out a room or use part of the home for business, there is no deemed disposition if the rental or business use is relatively small, there are no structural changes and no capital cost allowance is claimed. Claiming capital cost allowance on the business part can cost the exemption for that part. Where only part of a home is the principal residence, the selling price and cost base are split by square metres or number of rooms, if the split is reasonable.

Selling a condo quickly

A gain on a flipped property, meaning a housing unit in Canada, or a right to acquire one, owned or held less than 365 consecutive days before disposition, is deemed business income, and the exemption does not apply. There are listed exceptions, such as a sale due to death, serious illness, a threat to personal safety or an eligible relocation.

What to do next

• Gather proof of ownership, such as title, co-op share or lease documents.
• Note the years you or a family member lived in the dwelling.
• Record any rental or business use of part of the home.
• Report the sale on Schedule 3 even if the gain is exempt.
• For a mobile home, houseboat or similar dwelling, ask an accountant or lawyer whether it is a housing unit before you rely on the exemption.

Frequently asked questions