Selling One Home and Buying Another in the Same Year: Canada's Plus-One Rule

Moving is rarely tidy. You sell the old house, buy the new one, and for a few weeks or months you may own both. When tax time comes, a natural question is whether the profit on the old home is taxable because you also own another property.

The tax rules have a built-in answer for this overlap, often called the plus-one rule. This article explains how it works, who it applies to, where it does not apply, and what you report. It covers federal tax rules only, and the details of your own situation are worth confirming with a lawyer or accountant.

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

How the exemption formula works

The exempt part of your gain on a principal residence is worked out under paragraph 40(2)(b) of the Income Tax Act. The formula is A minus (A multiplied by B/C), minus D.

• A is the gain otherwise determined on the sale.
• B is one plus the number of years ending after you acquired the property for which it is designated as your principal residence.
• C is the number of years ending after you acquired the property in which you owned it.
• If you were not resident in Canada in the year you acquired the property, B counts only Canadian-resident years.

In plain words, the formula compares the years you designated the home with the years you owned it. The more years you designate, the larger the exempt fraction.

What the plus-one year does

If a home was your principal residence for all the years you owned it except one, the extra year in B means the whole gain is exempt. CRA explains it as letting you designate the sold home for the year of sale when you also bought another home that year.

CRA's folio puts it this way: when you sell one home and buy another in the same year, both are treated as principal residences for that year under the one-plus rule. That is why the overlap year does not cost you the exemption on the old home.

For example, say you owned a home for ten years and lived in it for nine of them, then bought a new home in the tenth. With the extra year in B, the fraction B/C works out to the full ten over ten, and the gain is fully exempt.

One property per family unit, and splitting years

Only one property per family unit can be designated as a principal residence for each year from 1982 onward. For 1993 and later years, the family unit is you, your spouse or common-law partner, and your unmarried children under 18.

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 the plus-one rule does not help

• Non-residence: the plus-one year is not available if you were not a Canadian resident in the year you bought the new property, and B counts only years of Canadian residence. A non-resident generally cannot use the exemption for non-resident years.
• Vacant land: years in which the property was vacant land count in C but not in B, so they reduce the exempt fraction.
• Flipped homes: a gain on a home owned less than 365 consecutive days before sale is deemed business income for dispositions after 2022, and the principal residence exemption does not apply. Exceptions exist for events such as death, serious illness, an eligible relocation or the end of a relationship, so the facts matter.

If you owned the property for years before moving abroad, or if part of your ownership overlaps with rental use, the numbers can change. These are good points to review with a lawyer or accountant.

Reporting the sale, even when the gain is exempt

Since the 2016 tax year, the 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 sale and the designation are reported.

• Use Form T2091(IND) to designate the property and calculate any gain. Only page 1 needs completing if the property was your principal residence for all years owned, or all years except one.
• On Schedule 3, Part 1, tick box 1 at line 17900 if the home was your principal residence for all years owned, or all but one.
• Report the sale itself in Part 2 of Schedule 3.
• If you sold more than one property in the year, the gain per property is reported on line 15800.

Form line numbers can change from one tax year to the next, so check the current version of the form before you file.

What to do next

• List each year you owned the old home and note which years it was your principal residence.
• Confirm the dates you bought and sold, and whether you were a Canadian resident in the year you bought the new home.
• Check whether any other property was designated for your family unit in the same years.
• Gather the closing documents for the sale and purchase, including legal and commission costs.
• Complete Form T2091(IND) and Schedule 3 with your return for the year of sale.
• If the facts are unusual, such as part-year rental, vacant land or a short ownership period, ask a lawyer or accountant before filing.

If you forget to designate, ask CRA to amend the return for that year. CRA may accept a late designation in certain circumstances, but a penalty may apply.

Frequently asked questions