Disposing of your principal residence

When you sell your home or when you are considered to have sold it, usually you do not have to pay tax on any gain from the sale because of the principal residence exemption. This is the case if the property was solely your principal residence for every year you owned it.

Property flipping

Starting January 1, 2023, any gain from the disposition of a housing unit (including a rental property) located in Canada, or a right to acquire a housing unit located in Canada, that you owned or held for less than 365 consecutive days before its disposition is deemed to be business income and not a capital gain, unless the property was already considered inventory or the disposition occurred due to, or in anticipation of one of the following life events:

Note

A loss from a business in respect of a flipped property, if any, is deemed to be nil.

If the property is not considered flipped property, whether the income from selling the property should be treated as business income or as a capital gain depends on the specific details of the situation. If the disposition is considered:

For more information about flipped property, go to Residential Property Flipping Rule or see Schedule 3.

For more information about business income, go to Business income or see Guide T4002, Self-employed Business, Professional, Commission, Farming Income.

Reporting the sale of your principal residence 

If you sold or if you were considered to have sold your property in 2023 and it was your principal residence, you have to report the sale and designate the property on Schedule 3, Capital Gains (or Losses). In addition, you also have to complete Form T2091(IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust). Complete only page 1 of Form T2091(IND) if the property you sold was your principal residence for all the years you owned it, or for all years except one year, being the year in which you replaced your principal residence.

Why you have to report the sale 

Effective 2016 and subsequent taxation years, the CRA will only allow the principal residence exemption if you report the disposition and designation of your principal residence on your income tax and benefit return. If you forget to make this designation in the year of the disposition, it is very important to ask the CRA to amend your income tax and benefit return for that year. The CRA will accept a late designation in certain circumstances, but a penalty may apply.

If your home was not your principal residence for every year that you owned it, you have to report the part of the capital gain on the property that relates to the years for which you did not designate the property as your principal residence. To do this, complete Form T2091(IND). You are also required to complete the applicable sections of Schedule 3 as indicated on page 2 of the schedule.

Note

Because your home is considered personal-use property, if you have a loss at the time you sell or are considered to have sold your home, you are not allowed to claim the loss.

If only a part of your home qualifies as your principal residence and you used the other part to earn or produce income, you have to split the selling price and adjusted cost base between the part you used for your principal residence and the part you used for other purposes (for example, rental or business). You can do this by using square metres or the number of rooms, as long as the split is reasonable.

The CRA will consider the entire property to maintain its nature as a principal residence in spite of the fact that you have used it for income producing purposes when all of the following conditions are met:

This situation could occur, for example, where the property is used as a home day care. For more information, see Income Tax Folio S1-F3-C2, Principal Residence.

If you sold or if you were considered to have sold, more than one property in the same calendar year and each property was, at one time, your principal residence, you must show this by completing a separate Form T2091(IND) for each property to designate what years each was your principal residence and calculate the amount of capital gain, if any, to report on line 15800 of Schedule 3, Capital Gains (or Losses).

Completing your Schedule 3

Report on line 13800 of Schedule 3 only the gain on the part you used to produce income. You are also required to complete page 2 of Schedule 3 to report the sale of your principal residence. For information on how to report the gain see Real estate, depreciable property, and other properties and Income Tax Folio S1-F3-C2, Principal Residence. You will also find an example that provides information on how to calculate the capital gain and your reporting requirements for the sale.

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