What is a Principal Residence Exemption on the Sale of Canadian Property?
When you sell your home, you may realize a capital gain resulting in a tax liability. Normally, if the property was solely your principal residence for every year you owned it, you do not have to pay tax on the gain. If the property was deemed your principal residence only for a few years during the ownership then you may qualify for a partial principal residence exemption.
Certain requirements must be met in order to qualify as a principal residence, such as the type of property, ownership status, living in the property and designating the property as a principal residence.
As a non-resident of Canada, tax residency status determines the eligibility and duration of the applicable principal residence exemption during the eventual sale of the property.
An individual may own multiple properties that are used ‘personally’, however only one property may be designated as a principal residence for a particular year.
Many individuals will convert their principal residence in Canada to a rental property when moving abroad. There is a 45 (2) Election that can be submitted with your Canadian Income Tax Return during the year a property is converted to a rental property to defer capital gains for an additional year. We’ll soon release an article further discussing the 45(2) Election.
Are you considering selling your Canadian property? Be sure to speak with one of our tax experts to discuss the tax implications related to the sale. We’re always here to help.