How to Report the Sale of Your Principal Residence in Canada

You sold your home, and you expect the gain to be tax-free. Many people assume that means nothing needs to be filed. That is no longer how it works, and skipping the report can put the exemption at risk.

This guide walks through the steps on your T1 return: why you report, which form to use, which box to tick, and how to work out the numbers. Your facts may differ, so a lawyer or accountant can confirm anything unusual.

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

Why you must report a sale that is fully exempt

Since the 2016 tax year, the sale (or deemed sale) of a principal residence must be reported on Schedule 3 of the T1 return, even if there is no gain or the whole gain is exempt. CRA allows the exemption only if the disposition and the designation are both reported.

Individuals (other than personal trusts) designate the property and calculate any gain on Form T2091(IND). Only page 1 needs completing if the property was the principal residence for all years you owned it, or all years except one.

Which box to tick at line 17900

On Schedule 3, the designation is made in Part 1 at line 17900. Tick box 1 if the home was your principal residence for all years owned, or all but one. Tick box 3 if it was not the residence for every year owned. Part 2 of Schedule 3 reports the sale itself.

How the plus-one year can make the whole gain exempt

Under paragraph 40(2)(b) of the Income Tax Act, the exempt part of the gain is A − (A × B/C) − D. A is the gain otherwise determined, and C is the number of years ending after acquisition in which you owned the property. B is generally one plus the number of years ending after the acquisition date for which the property is designated, except that if you were not a Canadian resident in the acquisition year, B counts only your years of Canadian residence. This page does not explain the term D, so how the formula applies to you depends on your situation and is worth confirming with a lawyer.

Because of the extra year in B, a home that was your principal residence for all years owned except one has its whole gain exempt. CRA explains this as letting you designate the sold home for the year of sale when you also bought another home that year. The plus-one year is not available if you were not a Canadian resident in the year you bought the new property, and a non-resident generally cannot use the exemption for non-resident years. Years the property was vacant land count in C but not in B, so they reduce the exempt fraction.

Working out the numbers

• The capital gain is proceeds of disposition minus the adjusted cost base (ACB) and the outlays and expenses of the sale, such as legal fees, transfer taxes and advertising.
• ACB is generally cost plus acquisition expenses such as commissions and legal fees, plus capital expenditures such as additions and improvements. Current expenses such as maintenance and repairs cannot be added.
• Half of the capital gain is taxable and goes on line 12700.
• If you sold for land and building, split the selling price between land and building on Schedule 3.
• A home is personal-use property, so a loss on the sale cannot be claimed.

If only part of the home was your principal residence and the rest earned income, the selling price and ACB are split by square metres or number of rooms, if the split is reasonable. A gain on the income-producing portion goes on line 13800.

Special cases and what to do next

• If you sold more than one property in the year, report the gain for each property on line 15800.
• If your gain is reduced because of a prior capital gains election on Form T664 or T664 (Seniors), use the worksheet Form T2091(IND)-WS to calculate the reduction.

• Gather purchase and sale documents, including legal and selling-cost records.
• Confirm which years the home was your principal residence.
• Complete Form T2091(IND), then Schedule 3, and tick the correct box at line 17900.
• If you forgot to designate in the year of sale, ask CRA to amend that year's return, noting that a penalty may apply.

If your situation involves rental use, a trust, or years outside Canada, speak with a lawyer or accountant before filing.

Frequently asked questions