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The principal residence exemption usually means no tax on the gain when you sell your home, but only if you report the sale and designate the property on your return. The CRA says it allows the exemption only when the sale and designation are reported on Schedule 3, with Form T2091(IND) for 2017 and later sales.
What counts as a principal residence in Canada?
A property counts as your principal residence for a year when it meets all of the conditions on the CRA page. It must be a housing unit (or a leasehold or co-op share that gives you the right to live in one), you must own it alone or jointly, you or a family member must have lived in it at some time during the year, and you must designate it.
The CRA lists a house, cottage, condominium, apartment, duplex unit, trailer, mobile home and houseboat as housing units. The occupancy test on the page is that someone in your family lived in it at some point during the year. The CRA page does not use the phrase "ordinarily inhabited", so this article uses the wording the page gives.
Land is covered too, with a limit. The CRA says the land is limited to half of a hectare (1.24 acres). More land can qualify if you can show you need it to use and enjoy your home, for example because the municipal minimum lot size is larger.
A loss on a principal residence is not deductible, because the CRA treats it as personal-use property. A home with a large gain and a home with a loss are both reported the same way on the return, which is covered further down.
Can you designate more than one home in the same year?
No. For 1982 and later years, you can designate only one home as your family's principal residence for each year. Earlier years (before 1982) allowed more than one home per family, under a special rule the CRA describes in its folio.
The family unit is defined on the CRA page. For 1993 and later, it includes you, your spouse or common-law partner (unless you were separated for the whole year under a court order or written agreement), and your children. There are exceptions for children who had a spouse or common-law partner, or who were 18 or older that year. If you were under 18 with no spouse or common-law partner, your family also includes your parents and your unmarried siblings under 18.
For 1982 to 1992 the page counts only a spouse, not a common-law partner. That means common-law partners could designate different homes for those years.
Take a couple who own a house and a cottage. Only one of the two properties can be the family's principal residence for any given year. The designation is made year by year, so the years assigned to each property decide how much of each gain is exempt. The calculator linked below shows how the numbers change when you assign different years.
How do you report the sale and designate the home?
You report the sale on Schedule 3 of your return for the year you sold, and you make the designation there. For 2017 and later sales, you also complete Form T2091(IND), which the CRA describes as the designation of a property as a principal residence by an individual.
Even a fully exempt sale has to be reported. The CRA says you usually do not pay tax on the gain, but starting with the 2016 tax year the sale must be reported with basic information: the date of acquisition, the proceeds of disposition and a description of the property.
The CRA states that it allows the principal residence exemption only if you report the disposition and designation on your return. A sale that is left off the return can lose the exemption for that reason alone.
If the home was your principal residence for every year you owned it, or for all years but one, complete only page 1 of Form T2091(IND). A property that was your principal residence for fewer years needs the rest of the form, because the exemption is worked out year by year.
The CRA also says to report the sale on your return for the year you sold the property. How you report it depends on the type of property, so a rental or a flipped property follows a different path from a home that was your principal residence every year.
What is the plus-one year?
The plus-one year is a special rule for the year you sell one home and buy another. The CRA page says the rule lets you treat both homes as eligible for that year.
To use it, the CRA says the taxpayer must be a resident of Canada during the year the principal residence is purchased. If you were not resident that year, the extra year does not apply.
The extra year matters because only one home can be designated per year. Without it, the year of a move could leave one of the two properties with a taxable year. The exact count is worked out on Form T2091(IND), so that form is the place to check how the extra year applies to your own sale.
What happens if you rented the home or used part of it for business?
A change in use is treated by the CRA as a sale at fair market value followed by a repurchase at the same amount. The years the property was your principal residence are exempt, and only the other years are taxable.
The CRA page describes two elections. Under subsection 45(2), when you change all of your home to rental or business use, you can elect to avoid the deemed sale. That allows up to four years of designation while the home is not your residence, with conditions. You cannot claim capital cost allowance on it while the election is in effect. Under subsection 45(3), when you change a rental or business property into your home, you can elect to postpone reporting, which allows up to four years of designation before you move in.
For a partial change, such as a home office or a rented basement, the CRA generally treats it as a deemed sale. The exception is when the part used for income is relatively small, there are no structural changes and no capital cost allowance is claimed on that part.
For mixed-use property, split the proceeds and cost by a reasonable method, such as square metres or number of rooms. Only the income-producing part's gain goes on line 13800 of Schedule 3. The related articles linked below cover the rental side of a sale in more detail.
Does the residential property flipping rule affect a home sale?
It can. The CRA page says a gain on a Canadian housing unit that you owned or held for less than 365 consecutive days is generally business income, not a capital gain.
The page lists exceptions for certain life events: death, a relationship breakdown (separated for at least 90 days), a threat to personal safety, serious illness or disability, an eligible relocation (the new home at least 40 km closer), involuntary job loss, insolvency, and destruction or expropriation of the home.
Another CRA page says that a rental property, a flipped property, or a property that was not your principal residence for every year you owned it may produce a taxable gain or profit. That applies in particular when the property was bought mainly to sell or rent out, or when it was a secondary property.
The pages this article used do not spell out how the flipping rule interacts with a designation in every case, so read the CRA text against your own facts.
What if you forgot to report the sale?
The CRA says to change your return and file a late designation for the related year as soon as possible. The CRA states that it can accept a late designation in certain circumstances, but a penalty may apply.
On the CRA page about the 2016 reporting change, the penalty is the lesser of two amounts: $8,000, or $100 for each complete month from the original due date to the date your request was made in a form satisfactory to the CRA. That page is part of a budget-measure notice, and the newer CRA pages only say that a penalty may apply, so check the current figure with the CRA.
Example only, with round numbers: if a late request is made 4 complete months after the original due date, the monthly figure is $400, and the CRA applies the lesser of that and $8,000.
The CRA pages this article read do not state a time limit for a late designation or list which documents to keep, so none is given here. Check the CRA site for record-keeping guidance.
Where does this information come from?
The facts come from the CRA pages named in the sources below, checked on 7 November 2026. This is an independent information site. It provides no services, does not represent the CRA or any organization, collects information from open sources, and does not guarantee that it is accurate or current. It accepts no liability. Check the official source before relying on any of it.
Frequently asked questions
Do I have to report the sale of my home if it is fully exempt?
Yes. The CRA says that starting with the 2016 tax year the sale must be reported on your return with the date of acquisition, proceeds of disposition and a description of the property, and the designation made there.
Can a couple designate two different homes in the same year?
For 1982 and later years, the CRA page says only one home can be designated as the family's principal residence for each year. For 1982 to 1992, common-law partners were not counted as one family and could designate different homes.
Which form do I use to designate my principal residence?
You report the sale on Schedule 3 and, for 2017 and later sales, also complete Form T2091(IND). If the home was your principal residence for all years or all but one, only page 1 of the form is needed.
What is the penalty for not reporting the sale?
One CRA page says a late designation may be accepted in certain circumstances, with a penalty that is the lesser of $8,000 or $100 for each complete month from the original due date. Newer pages only say a penalty may apply.
Does selling a home within a year change the tax treatment?
The CRA page says a gain on a Canadian housing unit held for less than 365 consecutive days is generally business income, with exceptions for certain life events such as death, serious illness or an eligible relocation.