- If the home was your principal residence for every year you owned it and you designate it, the gain is generally exempt from tax.
- Since 2016 the exemption is allowed only if the sale and designation are reported on your tax return.
- A home owned for less than 365 consecutive days and sold on or after January 1, 2023 is generally treated as business income, and the exemption does not shelter it.
Selling a home in Alberta often raises one question near the end: will the profit be taxed? For many people the answer is no, because of a federal rule called the principal residence exemption. But the exemption is not automatic, and a few situations fall outside it.
This article explains how the exemption works, what you have to report, and the main exceptions. An accountant or lawyer can confirm how they apply to your situation.
This article covers the law of Alberta.
When the gain on your home is not taxed
A Canadian resident can claim the exemption only for a property that meets all the conditions of the definition for the year. It must be a housing unit that you own and designate as your principal residence.
Eligible types include houses, condos, cottages, apartments, and trailers or houseboats. If the property was your principal residence for every year you owned it and you designate it, the gain is generally exempt.
What qualifies as a principal residence
Under section 54 of the Income Tax Act, the housing unit must be ordinarily inhabited in the year by you, your spouse or common-law partner, your former spouse or common-law partner, or your child. It must also be designated in the prescribed form and manner, and no other property can be designated for that year.
A family can designate only one home as its principal residence for each year, for 1982 and later years. If you own a house and a cottage, you need to decide which one to designate for each year.
Land counts too. The principal residence includes the land under the unit and nearby land that reasonably contributes to its use and enjoyment. Where the total land is more than 1/2 hectare, the excess is deemed not to contribute, unless you show it was necessary to the use and enjoyment of the housing unit.
Reporting the sale and designating the home
You must report the sale of a principal residence on Schedule 3 (Capital Gains or Losses) of your return. Since 2016 the CRA allows the exemption only if the sale and designation are reported on the return.
You must also complete Form T2091(IND) when the home was not your principal residence for every year you owned it. For dispositions in 2017 and later, if the home was your principal residence for all years you owned it, or all but one year, only page 1 of Form T2091 (or T1255) is needed.
- Partial designation: if the home was 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.
- Late designation: if you fail to report the designation on time, the CRA may accept a late designation, but a penalty may apply.
- Selling one home and buying another in the same year: 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.
Situations where the exemption may not help
| Situation | What generally happens |
|---|---|
| Flipping | A housing unit sold on or after January 1, 2023 that you owned for less than 365 consecutive days is generally deemed business income, and the exemption does not shelter it. |
| Partial 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-residents | If you were not a Canadian resident for the entire period of ownership, the exemption may be reduced or eliminated, and the CRA says to contact it. |
| Trusts and deceased owners | Trusts report on Form T1079 with the T3 return, and a deceased person's legal representative reports the disposition on Schedule 3 of the final return. |
The flipping rule has exceptions for certain life events, including the death of the taxpayer or a related person, and destruction or expropriation of the property. A business loss on a flipped property is treated as nil.
If part of the gain is taxable, and what to do next
If your taxable capital gains are more than your allowable capital losses, you report the difference on line 12700 of your return, and you use Schedule 3 to work out the taxable capital gains. The CRA says it has reverted to administering the capital gains inclusion rate of one-half for individuals. Confirm the rate that applies for the year of your sale, since rates can change.
- List each year you owned the home and whether it was your principal residence.
- Check whether another property was designated for any of those years.
- Confirm how long you owned the home, in case the flipping rule could apply.
- Note any business use, years living outside Canada, or whether the owner is a trust or an estate.
- Report the sale and designation on your return, with the right forms.
- Ask an accountant or lawyer if anything above applies to you.
Frequently asked questions
Do I have to report the sale if the gain is fully exempt?
Yes. Since 2016 the CRA allows the exemption only if the sale and designation are reported on your return. For 2017 and later dispositions, 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 year.
Can my family claim two homes as principal residences in the same year?
Generally no. You can designate only one home as your family's principal residence for each year. The "plus 1" rule is a narrow exception for the year you sell one home and buy another.
What if I forgot to designate my home?
The CRA may accept a late designation, but a penalty may apply. It is best to speak with an accountant promptly about how to make the request.
Does Alberta add its own tax on the gain?
The exemption and reporting rules described here come from the federal Income Tax Act and CRA guidance. You report the sale of your principal residence on Schedule 3 (Capital Gains or Losses) of your federal return, and since 2016 the exemption is allowed only if the sale and designation are reported there. If your taxable capital gains exceed your allowable capital losses, you report the difference on line 12700. How Alberta rules apply to your situation is not covered here, so it is worth confirming with a lawyer.
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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