# Principal Residence Exemption Calculator for Cottages

> Estimate the tax when you sell a cottage, second property or a home you did not live in every year. Uses the (1 + years designated) / years owned formula.

Sell a cottage for $700,000 that cost you $420,000 and carried $35,000 of selling costs, and the gain is $245,000. You owned it 12 years and designate it as your principal residence for 8 of them, so the exemption covers 75% of the gain. In Ontario, with $90,000 of other income, the remaining $61,250 costs about $10,125 in extra tax (2026 estimate).

The calculator below runs the CRA formula for any cottage, rental or second home and shows what changes when you designate more or fewer years.

## How does the exemption work if the property wasn't my home every year?

The exempt share of the gain is (1 + years designated) divided by years owned, never more than 100%. With 12 years owned and 8 designated, that's 9 out of 12, or 75%. The other 25% is a taxable capital gain. Count each calendar year in which you owned the property at any point, and designate only years when you or your family ordinarily lived in it.

## Why does the formula add 1?

The extra year covers the year you swap one home for another, since a family can designate only one home for each year (the rule since 1982). The CRA gives you that extra year only if you lived in Canada in the year you bought the property. Designate every year but one and the share already hits 100%, so a property you lived in for 11 of 12 years is fully exempt.

## What does each designated year change?

A lot. On the sale above (Ontario, $90,000 of other income), the tax moves like this:

| Years designated (of 12) | Taxable gain | Extra tax |
| --- | --- | --- |
| 0 | $224,583 | $47,175 |
| 6 | $102,083 | $18,988 |
| 8 | $61,250 | $10,125 |
| 10 | $20,417 | $3,056 |
| 11 | $0 | $0 |

If you also owned a house you lived in during those years, the one home per family per year rule decides which property gets which years. Run both sales before you fill in the form.

## What do I have to report when I sell?

Any sale of a property that was ever your principal residence goes on Schedule 3 in the year you sell, along with Form T2091(IND). If the property was your home for every year, or all but one, only page 1 of the form applies. The CRA allows the exemption only if you report the designation, and a late designation can bring a penalty of the lesser of $8,000 or $100 for each complete month it's late. The [Canada Revenue Agency: reporting the sale of your principal residence](https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/federal-government-budgets/budget-2016-growing-middle-class/reporting-sale-your-principal-residence-individuals.html) page has the details.

## How is the taxable part taxed?

Half of the taxable gain is added to your income in the sale year. The planned increase to two thirds was [cancelled in March 2025](https://www.pm.gc.ca/en/news/news-releases/2025/03/21/prime-minister-mark-carney-cancels-proposed-capital-gains-tax-increase), so 50% still applies for the 2026 tax year. In the example, $30,625 lands on top of your other income. The same case costs about $9,476 in Alberta, $9,366 in British Columbia and $11,642 in Quebec. If you rented the place out first, read about [CCA recapture on a rental sale](https://tax-services.ca/calculators/income-tax/rental-cca-recapture), and compare with the [general capital gains tax calculator](https://tax-services.ca/calculators/income-tax/capital-gains-tax).

## Where does this information come from?

The rules come from the CRA pages on the principal residence exemption and on reporting the sale, CRA Income Tax Folio S1-F3-C2 and the Prime Minister's notice that the inclusion rate increase was cancelled. Dollar amounts come from this site's tax engine for 2026. Checked in October 2026. This is an independent information site: we provide no services, we do not represent the CRA or any organization, and we do not guarantee that anything here is accurate or current. We accept no liability for decisions based on it. Check the official source before you rely on it. See the [full disclaimer](https://tax-services.ca/disclaimer).

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Source: https://tax-services.ca/calculators/income-tax/principal-residence-gain
Last updated: 2026-10-07
Independent information site. Not affiliated with the CRA. No services, no guarantee of accuracy. See https://tax-services.ca/disclaimer