- Since 2016 the CRA allows the principal residence exemption only if you report the sale and the designation on your return, even when no tax is owing.
- For sales in 2017 and later, if the home was your principal residence for all years you owned it or all but one, only page 1 of Form T2091 (or T1255) is needed.
- Land over 1/2 hectare, part business use, non-residence, a sale within 365 days of buying, and estate or trust sellers can all change the result.
You sold your home in Alberta, and you expect no tax on the sale because it was where you lived. It is natural to assume you can simply leave it off your return. That assumption is where many sellers get into trouble.
This guide covers the reporting steps, not whether tax is owed in the first place. It walks through the designation, the forms, the one-home-per-year limit, what happens if you are late, and the cases where the exemption shrinks or does not apply.
This article covers the law of Alberta.
Yes, you report the sale even if no tax is owing
The principal residence exemption is not automatic. A Canadian resident can claim it only for a property that meets all the conditions of the definition for the year. It must be a housing unit you own and designate as your principal residence. Houses, condos, cottages, apartments, and trailers or houseboats can all qualify.
Since 2016, the CRA allows the exemption only if the sale and the designation are reported on your return. If the home was your principal residence for every year you owned it and you designate it, the gain is generally exempt. The exemption only works if you report it.
The reporting steps
For the year of sale, the steps are fairly short when the home was your residence the whole time.
- Report the sale on Schedule 3 (Capital Gains or Losses) of your return.
- Complete Form T2091(IND) when the home was not your principal residence for every year you owned it.
- If the home was your principal residence for all years you owned it, or all but one year, and you sold in 2017 or later, only page 1 of Form T2091 (or T1255) is needed.
- Reporting is still required in that simple case, even though it was not before 2016.
To be designated, the home must have been ordinarily inhabited in the year by you, your spouse or common-law partner (or former spouse or common-law partner), or your child. It must also be designated in the prescribed form and manner.
One home per family per year, and the plus-1 rule
For 1982 and later years, you can designate only one home as your family's principal residence for each year. No other property can be designated for that same year.
This matters in the year you sell one home and buy another. Only one can be designated for that year, but the "plus 1" rule lets both be treated as eligible for the exemption. You must be resident in Canada in the year the new property was purchased.
What if you did not designate it on time?
If you fail to report the designation on time, the CRA may accept a late designation, but a penalty may apply. The CRA's current guide does not give a firm amount, and older published figures should not be relied on. Confirm the current penalty with the CRA or an accountant before you assume a number.
Because the exemption depends on reporting, a missed designation can leave a gain that would have been sheltered exposed to tax. If you realize you left the sale off a past return, deal with it promptly.
When the exemption shrinks or does not apply
| Situation | What happens |
|---|---|
| Home designated for fewer years than you owned it | You report the part of the capital gain that relates to the years it was not designated. Taxable capital gains above allowable capital losses go on line 12700, and Schedule 3 is used to work them out. The CRA is administering a capital gains inclusion rate of one-half for individuals. |
| Large lot | The principal residence includes the land under the unit and nearby land that reasonably contributes to its use. Where the total land exceeds 1/2 hectare, only the excess is deemed not to contribute, unless you show it was necessary to the use and enjoyment of the home. |
| Part business use | The home keeps its status if the income-producing use is secondary, there is no structural change, and no capital cost allowance is claimed. |
| Non-resident for part of the time | The exemption may be reduced or eliminated, and the CRA says to contact it. |
| Sold within 365 days of buying | For sales on or after January 1, 2023, a housing unit owned for less than 365 consecutive days is generally deemed business income, and the exemption does not shelter it. Exceptions apply for certain life events, such as death or the destruction or expropriation of the property. |
| Estates and trusts | A deceased person's legal representative reports the sale on Schedule 3 of the final return. Trusts report on Form T1079 with the T3 return. |
The CRA has said it reverted to administering the currently enacted one-half inclusion rate for individuals. Rates can change, so confirm the rate that applies to your year of sale.
What to do next
Before you file, pull together what you need to answer a few simple questions: when you bought, when you sold, and which years the home was your residence.
- Gather your purchase and sale documents, including the dates of each.
- List any years the home was rented, used for business, or you lived outside Canada.
- Check the lot size if the property is acreage or large.
- Note whether you bought another home in the same year.
- Confirm whether the seller is an estate or trust, or whether the 365-day rule could apply.
- Ask an accountant or lawyer to review your designation if anything on this list applies.
Frequently asked questions
Do I have to report the sale if I lived in the home the whole time?
Yes. Since 2016 the CRA allows the exemption only if the sale and designation are reported on your return. For sales in 2017 and later, only page 1 of Form T2091 (or T1255) is needed if the home was your principal residence for all years you owned it, or all but one.
Can my spouse and I each designate a different home for the same year?
No. You can designate only one home as your family's principal residence for each year. The plus-1 rule helps in the year you sell one home and buy another.
What happens if I forget to designate the home?
The CRA may accept a late designation, but a penalty may apply. Confirm the current amount with the CRA or an accountant rather than relying on older figures.
Does the exemption apply if I sold the home quickly after buying it?
Not necessarily. For sales on or after January 1, 2023, a home owned for less than 365 consecutive days is generally deemed business income, and the exemption does not shelter it. Certain life events, such as death, are exceptions.
Sources
- CRA – Principal residence — canada.ca
- Income Tax Act, RSC 1985, c 1 (5th Supp), s. 54 — Justice Laws (federal)
- CRA – Reporting the sale of your principal residence for individuals (other than trusts) — canada.ca
- CRA – Income Tax Folio S1-F3-C2, Principal Residence — canada.ca
- CRA – Update on the CRA's administration of the proposed capital gains taxation changes — canada.ca
- CRA – Line 12700 – Capital gains — canada.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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