The CRA's Principal Residence Exemption - Basics

Updated: Nov 29, 2021



One of the benefits to owning your home is capital gain - you could sell your house for a higher price than you bought it for. The Canada Revenue Agency charges a capital gains tax in some situations to this money that's being made.


You wouldn't have to pay this tax if the house you bought was your principal residence for every year you owned it. If at some point you lived somewhere else, the situation could get more complicated. You may get partial credit if you the property was your principal residence for some of the period you owned it.


But what counts as a principal residence? It could be a house, condo, house boat, or mobile home that you, your spouse, or child "ordinarily inhabited." If you have a vacation home you stay in for two weeks of the year and rent out to strangers, it won't be considered a principal residence.


There are four pieces of criteria your home needs to meet in order to count as your principal residence. According to the Income Tax Act, the property must be a housing unit (not an office), you must own it (not rent), you or your spouse/kids have to stay in it, and you have to 'designate the property as a principal residence'. This article from the Government of Canada's website breaks down what it means to designate your property properly.


It's possible for your vacation home to count for this even if you aren't there most of the year. According to the Act, properties you stay in part of the year are considered "provided that the main reason for owning the property is not to gain or produce income.”


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