Reporting the Sale of Your Home on Your Tax Return in Ontario

Many Ontario homeowners assume that selling a principal residence needs no mention on a tax return because the gain is usually not taxed. That assumption is a common reason people end up with a letter from the CRA later.

This article walks through what you report, which forms are involved, how the exemption is calculated, and what to do if you forgot.

Do you have to report the sale?

Yes. Reporting the sale on Schedule 3 and Form T2091 is required even if the home was the principal residence for every year you owned it. It is also required for a deemed disposition such as a change in use.

The exemption is not automatic in the sense of skipping the paperwork. You claim it by reporting the sale and designating the property.

How to report it step by step

The sale is reported on Schedule 3, Capital Gains or Losses, and the property is designated by ticking box 1 at line 17900 of Part 1. Form T2091(IND) is completed and included with the return. Only page 1 is completed if the property was the principal residence for all years owned, or all but one.

• Find your closing documents: the sale and purchase statements and lawyer's reporting letters.
• Work out your proceeds of disposition, which are usually the amount received or to be received.
• Work out your adjusted cost base: the cost plus acquisition expenses such as commissions and legal fees, plus capital improvements but not maintenance or repairs.
• List your selling costs, such as brokers' fees, legal fees, transfer taxes, commissions and advertising.
• Complete Schedule 3 and tick box 1 at line 17900.
• Complete Form T2091(IND) and include it with your return.

How the gain and exemption are calculated

The starting point is the capital gain: proceeds of disposition minus the adjusted cost base and the outlays and expenses of the sale. Selling costs reduce the gain and cannot be deducted from other income.

The principal residence exemption then reduces the gain using a formula: A − (A × B/C) − D. A is the gain otherwise computed. B is the number of years after acquisition that the property was your principal residence and you were resident in Canada, plus one if you were resident in the acquisition year. C is the number of years after acquisition that you owned the property. D applies only to properties acquired before February 23, 1994, where a subsection 110.6(19) election was made; otherwise it is zero.

If the home was your principal residence for every year, the result is generally no taxable gain. If it was not, part of the gain may be taxable, and half of any capital gain is generally included. Only one home can be designated as the family's principal residence for each year from 1982 on.

Special situations

Where the property was bought mainly to sell for profit, the principal residence exemption may not help, and the profit can be taxed as business income.

If you forgot to report

The penalty for a late-filed election or designation is the lesser of $8,000 and $100 for each complete month from the original due date to the date of the request. The Minister may extend the time for an election if you apply within ten calendar years after the end of the relevant tax year. The CRA says it may accept a late principal residence designation in certain circumstances, but a penalty may apply.

If a real estate disposition was not reported, the CRA may reassess beyond the normal reassessment period, limited to amounts related to that disposition. Acting early is usually better than waiting.

What to do next

• Check last year's return and your filed forms to see whether the sale was reported.
• Collect your purchase and sale closing documents, and records of improvements.
• List every year you lived in the home and every year you were a Canadian resident.
• If you rented part or all of the home, tell your accountant or lawyer before filing.
• If you missed the reporting, get advice on a late designation before the CRA contacts you.

Frequently asked questions