Selling Your Home in Ontario: The Principal Residence Exemption

Most homeowners in Ontario sell their house without paying tax on the profit, thanks to the principal residence exemption. But there is a filing step that many people miss. Here is how it works in plain language.

What the exemption does

When you sell a property for more than you paid, the gain is normally a capital gain. If the home qualifies as your principal residence for every year you owned it, the Canada Revenue Agency says no tax is payable on that gain. It is one of the biggest tax advantages available to homeowners.

The rule that catches people: you must report the sale

Since 2016, the sale of a principal residence has to be reported on your tax return, even when no tax is owed. According to the CRA, you must:

• report the sale on Schedule 3 (Capital Gains or Losses)
• complete Form T2091(IND), Designation of a Property as a Principal Residence by an Individual

If you do not, the exemption can be lost. The CRA also notes that a late designation may carry a penalty. This is done on the return for the year of the sale.

One designation per family per year

For any given year, only one property can be designated as the principal residence for a family. This matters if you own a home and a cottage, or if you moved and owned two properties at once. In those cases, which property you designate for which years can affect the tax owed on the other, so it is worth planning before you sell.

No deduction for a loss

If you sell your principal residence for less than you paid, the CRA states the loss is not deductible. The exemption does not work both ways.

Properties held less than a year

The CRA says that if you held a property for less than 365 days, the profit is generally treated as business income rather than a capital gain, unless the sale was because of certain life events. This is a common issue for flippers and for anyone who sells soon after buying, so get advice if that is your situation.

What about the capital gains inclusion rate?

If part of your gain is taxable, for example on a second property, the portion included in income is one-half. The proposed increase to that rate was cancelled, according to the federal government. Your accountant can calculate the numbers on your own return.

Where we fit in

We help with the real estate side: preparing and pricing your home, marketing it, and negotiating. To get started, request a free home valuation and see our reasons to list with us. If you are moving to a new home, our guide on buying before selling will help you plan the order.

Talk to an accountant

This article is general information and not tax advice. Your situation, such as rental use, a home office, owning more than one property, or moving from another country, can change the answer. Please speak with a qualified accountant before you sell. When you are ready to plan your sale, contact us.

Situations that deserve extra care

Some sellers have more to think about than a simple sale of the family home. These are examples where an accountant is especially valuable:

• You rented out part of the home, or used part of it for business.
• You owned another property, such as a cottage, during the same years.
• You inherited the property or received it as a gift.
• You are leaving Canada, or buying and selling at the same time.
• You owned the home for a short period before selling.

In each of these cases, the rules can be more complicated than the headline “no tax on your home.” The CRA’s page on principal residences is the best primary source, and an accountant can apply it to your facts. The earlier you ask, the more options you usually have.