Qualification for Principal Residence Status – You Could Be Surprised!

Your principal residence exemption is an income tax benefit that generally provides you an exemption from tax on the capital gain realized when you sell the property that is your principal residence. Generally, the exemption applies for each year the property is designated as your principal residence. It came into effect after 1971, just when the capital gains tax was introduced and is a year-by-year calculation.  One must be a Canadian resident who owns and has lived in the property in that year. Currently you may have one or more properties that might qualify (see details below) so you must designate one property in the year of disposition on your tax return. Failing to do so may result in penalties of up to a total $8,000.00. If you have more than one property and have lived in both, you have a choice of which property you want to designate as a principal residence, however you are only allowed to designate one property during that period. The land area to be included as part of the principal residence cannot exceed 0.5 hectare (50m X 100m) unless the excess land was necessary for the use and enjoyment of the housing unit. The property must be a housing unit, a leasehold interest or capital stock of co-operative housing. The housing unit must be inhabited in the year by you, your spouse or common-law partner, former spouse or common-law partner or your child.

There are several factors that might allow for your claim to be over 0.5 hectare of land. We recommend you get some advice from a professional before you file your return in the year of disposition of your principal residence.