Sale of a principal residence
Before you start
When an individual sells their principal residence, any gain from that sale is not taxable because of the principal residence exemption. This exemption only applies if the property was considered the individual’s principal residence for all the years they owned it.
Before 2016, it was not necessary to report the sale of an individual’s principal residence. However, for dispositions in 2016, if an individual sold their property, and it was their principal residence for every year they owned it, the sale and designation of the principal residence had to be reported on Schedule 3, Capital Gains (or Losses), in all situations.
For dispositions in 2017 and later years, in addition to reporting the sale and designating the property as a principal residence on Schedule 3, a completed form T2091(IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust), is also required.
Generally, a volunteer should not prepare returns for individuals who sold their property. However, CVITP volunteers can prepare returns for individuals who have sold a property only if:
- the entire property is designated as their principal residence for all years that they owned it
- the individual never reported any rental income (or loss) generated from the property
If these conditions do not apply, the situation would be considered complex and, therefore, beyond the scope of CVITP volunteer responsibilities.
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Need to know
Disposition is usually an event or transaction where an individual gives up possession, control, and all other aspects of property ownership.
Proceeds of disposition are the amounts an individual received or will receive for their property. In most cases, it refers to the sale price of the property.
Personal-use property refers to items that an individual owns primarily for the personal use or enjoyment of their family and themselves.
For the sale of a principal residence in 2016 and subsequent years, the CRA will only allow the principal residence exemption if the disposition and designation of the principal residence are reported on the individual’s income tax return. If an individual forgets to make this designation in the year of the disposition, they must ask the CRA to adjust their income tax return for that year. The CRA will accept a late designation in certain circumstances, but a penalty may apply.
Note
It is not the responsibility of the volunteer to make the adjustment.
Individuals who have sold and designated their property as their principal residence for every year they owned it are only required to complete page 1 of the Form T2091(IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust), in addition to Schedule 3, Capital Gains (or Losses). The information required includes:
- the date of acquisition
- the date of disposition
- the proceeds of disposition
- the address of the principal residence
For more information, see Disposing of your principal residence.
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Screen-by-screen instructions
Disclaimer
This training uses screenshots taken from prior versions of the UFile CVITP software. Consequently, the images may differ slightly from the current version of UFile CVITP. The content is accurate, and generally, the only difference will be the tax year being referenced. Should the current year’s software contain any significant changes, a new screenshot will be published as soon as possible.
Text version
UFile screen
Under Interview tab
Family Head sub-tab
CRA questions topic is highlighted
Canada Revenue Agency (CRA) questions page
Did you sell a principal residence in 2019? The sale of a principal residence must now be reported, along with any principal residence designation is highlighted
Yes is highlighted
Canada Revenue Agency (CRA) questions
- Under CRA questions, answer Yes to the question Did you sell a principal residence in 2021
Note: This will generate the Capital gains (or losses) and ABIL section in the left side menu
Text version
UFile screen
Under Interview tab
Family Head sub-tab
Capital gains (or losses) and ABIL topic is highlighted
Capital gains and ABIL page
Personal use property (Including the principal residence) is highlighted
Capital gains and ABIL
- From the left side menu, select Capital gains (or losses) and ABIL
- Click the + sign next to Personal use property (Including the principal residence) from the Capital gains and ABIL section
Text version
UFile screen
Under Interview tab
Family Head sub-tab
Personal property topic is highlighted
Personal use property page
Description of the property section is highlighted
Designation of the property as a principal residence? is highlighted
Yes is highlighted
Personal use property
- Fill in the appropriate fields under:
- Date of acquisition
- Date of disposition
- Proceeds of disposition
- Answer Yes to the question Designation of the property as a principal residence?
Note: Once you have selected Yes, additional fields will generate on the same page.
Text version
UFile screen
Under Interview tab
Family Head sub-tab
Personal property topic is highlighted
Address of the principal residence section is highlighted
Select the form to use (T2091 or T1255) section is highlighted
Personal use property
- Complete the required fields under Address of the principal residence
- Use the drop-down menu to choose T2091 – Designation of a property as a principal residence by an individual when asked to Select the form to use (T2091 or T1255)
- Under Designation, enter the years the property was designated as the individual’s principal residence. The year provided in the From box should correspond with the Date of acquisition
Note: By default, the earliest year an individual can designate a property as their principal residence is 1972. Before 1972 capital gains were not taxed. For example, if you acquired your principal residence in 1968, the earliest year that UFile will accept is 1972.
UFile will automatically complete Schedule 3 and the T2091 for the individual, based on the information provided.
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Example: Reporting the sale of a principal residence
Instructions: Practice entering information into the mock profile
Open the UFile CVITP software and use the background information, slips required (tax slips, receipts, etc.), and points to remember sections provided in the example to enter all the necessary information. Once completed, compare your results with the solution provided.
Disclaimer
Examples have been created using fictional names. Any resemblance to persons real, imaginary, or deceased is purely coincidental. There is no intention for examples to depict stereotyping on any basis.
Background information Name Igor Muratovic Social insurance number (SIN) 000 000 000 Address 123 Main Street
City Province X0X 0X0
Date of birth March 15, 1965 Marital status Single Slips required:
T4 – Statement of Remuneration Paid
Igor sold his property for $170,000.00 on December 5, 2021. He acquired the property on January 15, 2000, and it has been his principal residence for every year he owned it.
Points to remember:
- Because the property Igor sold was his principal residence for all of the years he owned it, it does not affect his eligibility for CVITP services. His income level is still within the suggested income threshold
- Since the sale of the principal residence occurred after 2016, Igor needs to report the sale on his income tax and benefit return:
- Under CRA Questions, select Yes to the question Did you sell a principal residence in 2021?
Information slip for Igor:
T4 – Statement of Remuneration Paid (Botanical Gardens Inc.)
Text version
T4 – Statement of Remuneration Paid
Protected B
Employer’s name: Botanical Gardens Inc.
Employee’s name and address:
Last name: Muratovic
First name: Igor
123 Main Street
City, Province X0X 0X0
Box 12: Social insurance number: 000 000 000
Box 14: Employment income – line 10100: 34,500.00
Box 16: Employee’s CPP contributions – line 30800: 625.00
Box 18: Employee’s EI premiums – line 31200: 579.00
Box 22: Income tax deducted – line 43700: 4,350.00
Box 24: EI insurable earnings: 34,500.00
Box 26: CPP/QPP pensionable earnings: 34,500.00
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Solution: Reporting the sale of a principal residence
Instructions
This solution was calculated using the 2021 version of UFile CVITP, with Ontario as the province of residence. To validate your results, refer to the federal totals generated on lines 15000, 23600, 26000, and 42000. Calculations may vary depending on the province/territory selected in the Identification section. To view your results, click the Federal summary link found under the Review tab when you have completed the example.
Text version
Igor Muratovic
Total income
10100 Employment income: $34,500.00
15000 Total income: $34,500.00
Net income
22215 Deduction for CPP and QPP enhanced contributions: $57.34
23600 Net income: $34,442.66
Taxable income
26000 Taxable income: $34,442.66
Non refundable tax credits
30000 Basic personal amount: $13,808.00
30800 CPP or QPP contributions through employment: $567.66
31200 Employment Insurance premiums through employment: $545.10
312600 Canada employment amount: $1,257.00
33500 Total: $16,177.76
33800 Total @ 15%: $2,426.66
35000 Non refundable tax credits: $2,426.66
Refund or balance owing
42900 Basic federal tax: $2,739.74
40500 Federal foreign tax credit (T2209): $0.00
40600 Federal tax: $2,739.74
41700 Line 40600 - 41600: $2,739.74
42000 Net federal tax: $2,739.74
42800 Provincial or territorial tax: $1,027.99
43500 Total payable: $3,767.73
43700 Total income tax deducted: $4,350.00
Payments and credits
45000 Employment insurance overpayment (excess contributions): $33.90
48200 Total credits: $4,383.90
48400 Refund: $616.17
Form T2091(IND), Designation of a Property as a Principal Residence by an Individual (Other than a Personal Trust)
Text version
Protected B
Tax year: 202X
Description of property
Address (street number, street name, and unit number if applicable): 123 Main Street
Prov./Terr: ON
Postal code: X0X 0X0
Box 9955: Year of acquisition: 2000
Box 9954: Proceeds of disposition: 170,000.00
Designation: I, Muratovic, Igor, hereby designate the property described above to have been my principal residence for the following number of tax years ending after the acquisition date:
Line 1: After 1981: 2X
Line 2: After 1971 and before 1982: 0
Line 3, box 9956: Total number of years designated (line 1 plus line 2): 2X
Signature: blank
Social insurance number: blank
Date: blank
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