The CRA's Principal Residence Exemption - Basics
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. Click this link for some numbers and further explanation on this.
According to the Canada.ca website, 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.
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 some changes to the Income Tax Act being proposed in Canada that could effect your ability to claim this tax. In addition, not reporting your ownership of real estate property, even if no tax is payable, could make the government reassess your application, according to the Financial Post.
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.”
There are some limitations to how big the property can be unless you can prove that you're using the space for your enjoyment. Maybe you need a few hectares of land because you have a horse. And you're not using the land or horse to make money.
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Bijan Law is a general practice law firm in Downtown Vancouver. We can help you out whether you're entering a partnership for investment, starting or purchasing/selling a business, want to keep wealth within your family, immigrate to Canada, or resolve a dispute.
Note: these blog posts are written by a communications professional and are not intended to be legal advice. One of our lawyers would be glad to help if you have a specific issue in mind.