The principal residence exemption lets Canadians sell their main home without paying tax on the capital gain, for the years it qualified as their principal residence.
A capital gain on the sale of your home is generally exempt from tax under the principal residence exemption. A property qualifies for a year if you, your spouse or a child ordinarily inhabited it, and each family unit can designate only one principal residence per year.
Since 2016 the sale of a principal residence must be reported on your T1 even when fully exempt, and failing to report can jeopardise the exemption. Complications arise with a change in use (renting out part of the home), owning more than one property, or years of non-residence, all of which can make part of the gain taxable.
You bought your home for $400,000 and sell it for $650,000. The $250,000 gain is exempt because the home qualified as your principal residence for every year you owned it, though you must still report the sale on your return.
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