Principal Residence Exemption for BC Home Sellers Explained

If you sell the home you live in in British Columbia, the principal residence exemption may apply to the gain, but the CRA will only allow it if the sale and designation are reported. The sections below explain how the reporting and designation steps generally work.

This article explains who qualifies, what you report and where problems arise. An accountant can confirm how it applies to you.

This article covers the law of British Columbia.

Who qualifies

You can designate only one home as your family's principal residence for each year from 1982 on. The home must be owned, ordinarily inhabited by you or a family member, and designated. Houses, condos, apartments, trailers and houseboats can qualify.

• Owned: you must own the home.
• Ordinarily inhabited: you or a family member must live in it.
• Designated: the home must be designated as the family's principal residence for the year.

Land that counts toward the principal residence is generally limited to half a hectare (1.24 acres), but more land may qualify if you can show you need it to use and enjoy your home. Because the one-home limit applies year by year, owning more than one property means the designation for each year deserves some thought.

If you were not a Canadian resident for the entire ownership period, contact the CRA because this may reduce or eliminate the exemption.

What you must report

Since the 2016 tax year, the sale must be reported on Schedule 3 (Capital Gains) of your T1 return, giving the date of acquisition, proceeds of disposition and a description of the property. The CRA will only allow the exemption if the sale and designation are reported.

For dispositions 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 forgot to designate, ask the CRA to amend the return, and the CRA may accept it in certain circumstances. The penalty for a late designation is the lesser of $8,000 or $100 for each complete month from the original due date to the date the request was made.

Keep your records of when you bought the home, what you paid and what you sold it for, so the figures on your forms match your documents.

Large lots, rentals and home offices

Renting out the whole home changes the picture, because a change to income-producing use is treated as a sale at fair market value. Gains for the years it was your principal residence stay exempt, but gains for other years are reportable.

If only part of the home earns income, the result turns on whether the use is ancillary, whether there is any structural change and whether capital cost allowance is claimed. How this applies depends on your situation, so it is worth confirming with an accountant.

Flipping and losses

Property owned for less than 365 consecutive days before disposition 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.

If you are selling soon after buying, count the days between acquiring and disposing of the home carefully, because the 365-day line is what matters.

A loss on the sale of a home is not deductible, because a home is personal-use property.

What to do next

• Confirm the dates you bought, lived in and sold the home.
• Note any years it was rented or partly used for business.
• Check whether capital cost allowance was ever claimed on any part of the home.
• Check your lot size against the half hectare limit.
• Confirm whether you were a Canadian resident for the whole time you owned the home.
• Gather the purchase and sale figures for Schedule 3 and Form T2091.
• Ask an accountant to review the designation before you file.

Property transfer tax is a buyer's cost rather than a seller's, and a qualifying first time home buyer may be exempt from it. It does not reduce the tax questions covered here, so keep the two separate when you plan your sale.

Frequently asked questions