If you are one of the majority of the Canadians who own only one personal residence at a time, any gain on the sale of your home will be tax free, thanks to the Principal Residence Exemption (PRE). However, there are other factors that come into play that could impact your ability to fully or even partly shelter the appreciation of your home from tax.
You can use the PRE to reduce of eliminate the capital gain on the sale if your home when it meets certain conditions. The CRA states that in order for your home to qualify as a principal residence for a particular year, the following must apply:
You must own it (either alone or jointly with another person);
You or your family members must inhabit it at some time during the year; and
No other property may be designated as the principal residence of any other member of your family unit for that year.
Here are some of the basic issues concerning the PRE:
Renovating and “flipping”
If you bought a home, renovated it, lived in it and then sold it, it may not qualify for the exemption, as the CRA may determine that the gain on the sale represents business income and thus would be ineligible.
Purchases made before 1982
Prior to 1982, you and your spouse could each have designated a separately owned home as a principal residence and sheltered each home from tax on capital gains. This allowance was cancelled on Jan 1 1982.
Renting out your home.
The PRE does not qualify if you:
Own the home just for rental purposes
Rent out more than 50% of the home
If you rent out your basement and claim a capital cost allowance on your taxes, by claiming the PRE, you may trigger a CRA review.
Size of your home lot
There are restrictions on the size of the area on which your home sits on. If the lot exceeds one half hectare, you may be required to show that the remainder of the lot is needed for the use and enjoyment of the residence.
Vacation property
In some cases, you may be permitted to chose a vacation property as your principal residence, but only if it is for your own vacations and not used to earn rental income.
It isn’t advisable to simple take for granted that the sale of your home will be tax-free. Consult an accountant or lawyer for the correct professional advice and information.
We have sold thousands of homes for hundreds of satisfied clients. If you are considering selling your home, we can find you a qualified buyer and remove the stress. Contact us on 604 913 1888, visit one of our offices or
email us.