The principal residence exemption is not automatic and it is not all-or-nothing. It is a fraction, and the years you did not designate are the years that cost you.
Income Tax Act s. 40(2)(b). This tool computes the exempt fraction only — it deliberately does not apply an inclusion rate, because that figure has changed, been deferred and been reversed across recent budgets. Confirm the rate for your year of disposition. Reviewed 28 August 2026.
The exempt portion is the gain multiplied by one plus the number of years designated, divided by the number of years owned. The extra year exists so that someone who buys a new home before selling the old one does not lose a year to the overlap.
The plus-one year is only available if you were resident in Canada in the year you acquired the property. Non-residents at acquisition lose it, which quietly changes the answer.
A property can only be designated for years in which you or your family ordinarily inhabited it, and a family unit can only designate one property per year. Cottage owners face this directly — designating the cottage for a year means not designating the house.
Renting the property out, or converting part of it to income use, triggers a change-of-use rule and can deem a disposition at fair market value even though nothing was sold. Elections exist that defer this, but they must be filed.
Report the sale either way. A disposition of a principal residence has to be reported even when the gain is fully exempt, and the penalty for not reporting is real.
The exempt portion of the gain is the gain multiplied by one plus the number of years the property was designated as your principal residence, divided by the number of years you owned it.
It covers the year in which you buy a replacement home before selling the old one, so the overlap does not cost you a year of exemption. It is available only if you were resident in Canada in the year you acquired the property.
Not for the same years. A family unit can designate only one property as its principal residence for any given year, so designating the cottage for a year means giving that year up on the house.
Yes. A disposition of a principal residence must be reported on your return even where no tax is payable, and failing to report can attract a penalty.
Open your file tonight — a licensed Ontario lawyer will confirm your exact Land Transfer Tax and closing costs in writing.