Can Spouses Each Designate a Different Home in Canada?

If you and your spouse or partner own more than one home, such as a house and a cottage, you may wonder whether each of you can claim a different one as your principal residence. The answer depends on who is in your family unit and which years are involved.

This article explains the one-property rule under Canadian federal tax law, the exceptions, how years can be split between homes, and how the designation is reported to the Canada Revenue Agency (CRA).

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

The one-property-per-family-unit rule

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.

This means that, in general, you and your spouse cannot each shelter a different home for the same year. The designation is made year by year, so the question is always which single property is designated for a given year.

Exceptions: separation and minors

• A spouse or common-law partner separated for the whole year under a court order or written separation agreement is not in the same family unit for that year, so each can designate a different home.
• An unmarried person under 18 with no spouse, partner or child has a family unit that also includes their parents and unmarried siblings under 18.

Being separated in practice is not enough on its own. The exception is tied to the whole year and to a court order or written separation agreement. If your situation is close to the line, a lawyer or accountant can confirm how it applies.

Older years: before 1993

The rules were different in earlier years. Before 1982, more than one home per family could be designated. For 1982 to 1992, the one-property rule applied only to spouses, so common-law partners could designate different homes.

Common-law partners are in the family unit for 1993 onward, and same-sex partners from 2001. This matters mainly if you are reviewing a home you have owned for a long time.

Splitting years, the plus-one year and co-owners

Spouses may split years between two homes by designating each home for different years, as long as no year is designated for two properties. A house and a cottage can share the exemption this way, though each year only one of them is covered.

When a home is sold and another is bought in the same year, both are treated as principal residences for that year under the "one plus" rule. If a home is the principal residence for all years owned except one, the extra year in the formula means the whole gain is exempt. The plus-one year is not available if you were not a Canadian resident in the year you bought the new property.

Co-ownership counts as ownership, including joint tenancy and tenancy-in-common. Each co-owner reports their own share on their own return and designates the property separately, and can designate only if no other property is designated for their family unit that year. A co-owner who does not live in the home, such as an adult child on title for a parent, cannot designate it unless the unit was ordinarily inhabited in the year by that co-owner or their spouse, partner, former spouse or partner, or child.

Reporting the designation and next steps

Since the 2016 tax year, the 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. The CRA allows the exemption only if the sale and the designation are reported.

Individuals designate the property and calculate any gain on Form T2091(IND), and only page 1 needs completing if the property was the principal residence for all years owned, or all years except one. On Schedule 3, Part 1, you tick box 1 at line 17900 if the home was the principal residence for all years owned or all but one, or box 3 if it was not the residence for every year owned.

• List each property you and your spouse or partner own and the years each was used as a home.
• Check whether any year of separation meets the court order or written agreement test.
• Decide which property is designated for which years, with no year used twice.
• Complete Schedule 3 and Form T2091(IND) with your return for the year of sale.
• Speak with a lawyer or accountant before filing if the years are complicated.

If you forgot to designate in the year of sale, you can ask the CRA to amend the return for that year. The CRA may accept a late designation in certain circumstances under section 220(3.2) of the Income Tax Act, and the Minister may extend the time if the request is made within ten calendar years after the tax year ends. A penalty may apply to a late designation.

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