October 14, 2014
How Does Principal Residence Exemption Work?
Written by: Lyndon Braun, CPA, CA
Does It Really Apply?
Generally, individuals buy and sell their personal homes without any thought towards how it may affect income taxes.
Many Canadians, specifically in B.C., have a large portion of their personal wealth tied up in their home. Many own properties with large accrued gains.
The question is: Does the principal residence exemption really apply to exempt the sale of your personal home from income tax?
The answer is not always as straightforward as you might think.
Do You Meet Principal Residence Exemption Requirements
Your answer to the following questions will determine whether you meet the technical requirements for principal residence exemption in Canada.
- Have you been a resident in Canada for the entire period that you owned your property?
- Is the land you own less than 1.2 acres in size?
- Have you ever rented out a portion of the home?
- Do you own another property, such as a vacation or rental property (even in another country)?
- Do you and your spouse (or common-law partner) own separate properties?
- Are you a beneficiary of a trust?
Depending on your answers, the principal residence exemption may, or may not, apply to the tax free sale of your home. It all depends on your specific situation.
If you are uncertain of how the personal residence exemption rules affect you and the tax free sale of your home, contact a member of the Manning Elliott Tax Team today. Our tax advisors would be happy to assist you in navigating these complex tax issues.
The above content is believed to be accurate as of the date of posting. Canadian Tax laws are complex and are subject to frequent changes. Professional tax advice should be sought before implementing any tax planning. Manning Elliott LLP cannot accept any liability for the tax consequences that may result from acting based on the information contained therein.