,canada ,cu/oms                       #a
& ,rev5ue ,ag5cy

          ,9t]pret,n ,bullet9
    
,numb]3 ,,it-#abj;,r#f
,date3 ,july #ag1 #bjjc
,subject3 ,9come ,tax ,act--,pr9cipal
  ,resid;e
,ref];e3 ,! def9i;n ( 8pr9cipal resid;e0
  9 sec;n #ed1 & p>agraphs #dj7#b77b7 &
  #dj7#b77c7 7al sec;ns #ed.a & #aaj.f2
  subsec;ns #ac7#g71 #dj7#d71 #dj7#f71
  #dj7#g71 #dj7#g.a71 #de7#a71 #de7#b71
  #de7#c71 #de7#d71 #ajg7#b71
  #ajg7#b.ja71 #ajg7#d71 #aaj.f7#ai7 &
  #bbj7#c.b72 p>agraph #ajd7#d77a72 &
  subp>agraph #dj7#b77g77;iii7 (! ,9come
  ,tax ,act2 & ,"p ,,xxiii (! ,9come
  ,tax ,regul,ns7

  ,at ! ,canada ,cu/oms & ,rev5ue ,ag5cy
7,,ccra71 we issue 9come tax 9t]pret,n
bullet9s 7,,it's7 9 ord] 6provide
te*nical 9t]pret,ns & posi;ns         #a
             ,,it-#abj;,r#f          a#a
reg>d+ c]ta9 provi.ns 3ta9$ 9 9come tax
law4 ,due 6_! te*nical nature1 ,,it's >e
us$ prim>ily 0\r /aff1 tax speciali/s1 &
o!r 9dividuals :o h an 9t]e/ 9 tax
matt]s4 ,= ^? r1d]s :o pref] a less
te*nical explan,n (! law1 we (f] o!r
public,ns1 s* z tax guides & pamphlets4
  ,:ile ! -;ts 9 a "picul> p>agraph 9 an
,,it may relate 6provi.ns (! law 9 =ce
at ! "t !y 7 made1 s* -;ts >e n a
sub/itute =! law4 ,! r1d] %d1 "!=e1
3sid] s* -;ts 9 li<t (! relevant
provi.ns (! law 9 =ce =! "picul> tax,n
ye> 2+ 3sid]$1 tak+ 96a3.t ! e6ect ( any
relevant am5d;ts 6^? provi.ns or
relevant c\rt deci.ns o3urr+ af ! date
on : ! -;ts 7 made4
  ,subject 6! abv1 an 9t]pret,n or
posi;n 3ta9$ 9 an ,,it g5],y applies z
(! date on : x 0 publi%$1 un.s o!rwise
specifi$4 ,if "! is a subsequ5t *ange 9
t 9t]pret,n or posi;n &! *ange is
b5eficial 6taxpay]s1 x is usu,y e6ective
= future assess;ts & reassess;ts4     #b
             ,,it-#abj;,r#f          b#a
,if1 on ! o!r h&1 ! *ange is n fav\ra#
6taxpay]s1 x w norm,y 2 e6ective =!
curr5t & subsequ5t tax,n ye>s or =
transac;ns 5t]$ 96af ! date on : ! *ange
is publi%$4
  ,mo/ ( \r public,ns >e availa# on \r
,web site at3 _+www.ccra.gc.ca_:
  ,if y h any -;ts reg>d+ matt]s 4cuss$
9 an ,,it1 pl1se s5d !m to3

  ,manag]1 ,te*nical ,public,ns &
    ,projects ,sec;n
  ,9come ,tax ,rul+s ,directorate
  ,policy & ,legisl,n ,bran*
  ,canada ,cu/oms & ,rev5ue ,ag5cy
  ,ottawa ,,on
  ,k#a;,a #j;,l#e

  or 0email at ! foll[+ a4ress3
_+bulletins@ccra.gc.ca_:



                                      #c
                 ,3t5ts              c#a
    
,applic,n
,summ>y
,4cus.n & ,9t]pret,n
  ,9troduc;n 7p>agraphs #a-b7
  ,types ( ,prop]ty ,t ,c ,qualify z a
    ,pr9cipal ,resid;e 7p>agraph #c7
  ,[n]%ip is ,requir$ 7p>agraph #d7
  ,! 8,ord9>ily ,9habit$0 ,rule
    7p>agraph #e7
  ,design,n (a ,prop]ty z a ,pr9cipal
    ,resid;e 7p>agraphs #f-g7
  ,calculat+ ! ,ga9 on ! ,4posi;n (a
    ,pr9cipal ,resid;e--,! ,pr9cipal
    ,resid;e ,exemp;n 7p>agraph #h7
  ,[n]%ip (a ,prop]ty 0,bo? ,sp\ses or
    ,-mon-,law ,"pn]s 7p>agraph #i7
  ,m ,?an ,"o ,resid;e 9 a ,tax,n ,ye>
    7p>agraph #aj7
  ,3/ruc;n (a ,h\s+ ,unit on ,vacant ,l&
    7p>agraph #aa7
  ,prop]ty ,[n$ on ,decemb] #ca1 #aiha
    7p>agraph #ab7
                                      #d
             ,,it-#abj;,r#f          d#a
  ,loss on ! ,4posi;n (a ,resid;e
    7p>agraph #ac7
  ,l& ,3tribut+ 6! ,use & ,5joy;t (!
    ,h\s+ ,unit z a ,resid;e 7p>agraph
    #ad7
  ,l& 9 ,excess ( ,"o-,half ,hect>e
    7p>agraphs #ae-af7
  ,4posi;n ( ,b>e ,l& 9 ,excess ( ,"o-
    ,half ,hect>e 7p>agraph #ag7
  ,4posi;n ( ,"p (a ,pr9cipal ,resid;e
    7p>agraph #ah7
  ,4posi;n (a ,prop]ty ,": ,only ,"p (
    ,x ,qualifies z a ,pr9cipal ,resid;e
    7p>agraph #ai7
  ,pr9cipal ,resid;e on ,l& ,us$ 9 a
    ,f>m+ ,busi;s 7p>agraphs #bj-bd7
  ,-plete ,*ange 9 ,use (a ,prop]ty ,f
    ,pr9cipal ,resid;e 6,9come-,produc+
    7p>agraphs #be-bg7
  ,-plete ,*ange 9 ,use (a ,prop]ty ,f
    ,9come-,produc+ 6,pr9cipal ,resid;e
    7p>agraphs #bh-bi7
  ,"pial ,*anges 9 ,use 7p>agraphs
    #cj-cb7                           #e
             ,,it-#abj;,r#f          e#a
  ,*ange 9 ,use ,rules ,reg>d+ ,,cca1
    ,deem$ ,capital ,co/1 & ,recapture
    7p>agraphs #cc-cd7
  ,p]sonal ,tru/s 7p>agraphs #ce-cg7
  ,transf] (a ,pr9cipal ,resid;e
    7p>agraph #ch7
  ,"pn]%ip ,prop]ty 7p>agraph #ci7
  ,a ,pr9cipal ,resid;e ,\tside ,canada
    7p>agraph #dj7
  ,non-,resid5t ,[n] (a ,pr9cipal
    ,resid;e 9 ,canada 7p>agraphs
    #da-dc7
--------------------------------------#b
  ,sec;n #aaf ,c]tificate =a ,4posi;n (a
    ,pr9cipal ,resid;e 9 ,canada 0a
    ,non-,resid5t ,[n] 7p>agraph #dd7
  ,app5dix ;,a--,illu/r,n (! ,rule 9
    ,subsec;n #dj7#f7
  ,app5dix ;,b--,illu/r,n ( ,calcul,n (
    ,ga9 on ,4posi;n (a ,f>m ,prop]ty
,explan,n ( ,*anges


                                      #f
               ,applic,n             a#b
    
  ,? bullet9 replaces & c.els ,9t]pret,n
,bullet9 ,,it-#abj;,r#e1 dat$ ,novemb]
#cj1 #aiii & applies =! #bjja &
subsequ5t tax,n ye>s4 ,un.s o!rwise
/at$1 all /atutory ref];es "?\t !
bullet9 >e 6! ,9come ,tax ,act4

                ,summ>y
    
  ,? bullet9 4cusses ! pr9cipal resid;e
exemp;n1 : c elim9ate or reduce 7= 9come
tax purposes7 a capital ga9 on ! 4posi;n
(a taxpay]'s pr9cipal resid;e4
  ,9 ord] =a prop]ty 6qualify = design,n
z ! taxpay]'s pr9cipal resid;e1 he or %e
m/ [n ! prop]ty4 ,jo9t [n]%ip ) ano!r
p]son qualifies = ? purpose4
  ,! h\s+ unit repres5t+ ! taxpay]'s
pr9cipal resid;e g5],y m/ 2 9habit$ 0!
taxpay] or 0his or h] sp\se or -mon-law
"pn]1 =m] sp\se or -mon-law "pn]1 or *4
  ,a taxpay] c designate only "o prop]ty
z 8 or h] pr9cipal resid;e =a         #g
             ,,it-#abj;,r#f          b#b
"picul> tax,n ye>4 ,fur!rmore1 =a tax,n
ye> t is af ! #aiha ye>1 only "o prop]ty
p] family unit c 2 designat$ z a
pr9cipal resid;e4
  ,if ! l& on : ! h\s+ unit is situat$
is n 9 excess ( "o-half hect>e1 x usu,y
qualifies z "p (! taxpay]'s pr9cipal
resid;e4 ,l& 9 excess ( "o-half hect>e
may al qualify1 b only 6! ext5t t x is
e/abli%$ 6be nec =! use & 5joy;t (! h\s+
unit z a resid;e4
  ,if ! taxpay]'s pr9cipal resid;e is
locat$ on 8 or h] f>m1 ! taxpay] has a
*oice ( two me?ods = det]m9+ :at por;n (
any ga9 on a 4posi;n (! f>m c 2 elim9at$
0! pr9cipal resid;e exemp;n4
  ,a -plete or "pial *ange 9 ! use (a
prop]ty f a pr9cipal resid;e 69come-
produc+1 or vice-v]sa1 results 9 a deem$
4posi;n (! prop]ty 0! taxpay] at fair
m>ket value4 ,! taxpay] may 2 a# 6elect
t ! deem$ 4posi;n on a -plete *ange 9
use does n apply4 ,a prop]ty cov]$ 0s*
an elec;n may qualify z ! taxpay]'s   #h
             ,,it-#abj;,r#f          c#b
pr9cipal resid;e = up 6f\r ye>s1 or
possibly l;g] 9 ! case (a "w reloc,n4
  ,x is al possi# =a p]sonal tru/ 6claim
! pr9cipal resid;e exemp;n on ! 4posi;n
(a prop]ty4 ,modific,ns 6! normal
pr9cipal resid;e exemp;n rules exi/ = ?
purpose4
  ,! abv topics >e 4cuss$ m fully 2l1 z
well z o!r topics relat+ 6! pr9cipal
resid;e exemp;n4
  ,! app5dices 6! bullet9 3ta9 illu/r,ns
( "s (! rules 4cuss$ 9 ! bullet94

          ,4cus.n & ,9t]pret,n
    
               ,9troduc;n
    
#a4 ,v>i\s topics 3c]n+ ! pr9cipal
  resid;e exemp;n >e 4cuss$ 9 ? bullet91
  z 9dicat$ 9 ! 8,3t5ts0 sec;n at !
  2g9n+ (! bullet94 ,x %d 2 not$ t "s (
  ^! topics >e n relevant = all
  taxpay]s4 ,= example1 a resid5t (
  ,canada :o [ns only "o h\s+ unit    #i
             ,,it-#abj;,r#f          d#b
  : is situat$ 9 ,canada on l& ( "o-half
  hect>e or less & : has be5 us$ s9ce xs
  acquisi;n /rictly z 8 or h] resid;e1 w
  usu,y f9d t p>agraphs #ad 6#dd h no
  "picul> relev.e4
#b4 ,if a prop]ty qualifies z a
  taxpay]'s pr9cipal resid;e1 he or %e c
  use ! pr9cipal resid;e exemp;n 6reduce
  or elim9ate any capital ga9 o!rwise
  o3urr+1 = 9come tax purposes1 on !
  4posi;n 7or deem$ 4posi;n7 (! prop]ty4
  ,! t]m 8pr9cipal resid;e0 is def9$ 9
  sec;n #ed (! ,9come ,tax ,act4 ,!
  pr9cipal resid;e exemp;n is claim$ "u
  p>agraph #dj7#b77b7 (! ,act1 or "u
  p>agraph #dj7#b77c7 ": l& us$ 9 a f>m+
  busi;s c>ri$ on 0! taxpay] 9cludes 8
  or h] pr9cipal resid;e4

  ,un.s o!rwise /at$1 any ref];e 9 ?
  bullet9 6a 8tax,n ye>0 or 8ye>0 m1ns a
  "picul> tax,n ye> = : ! pr9cipal
  resid;e exemp;n is 2+ claim$4
                                     #aj
             ,,it-#abj;,r#f          e#b
  ,v>i\s ref];es >e made "?\t ? bullet9
  6a taxpay]'s sp\se or -mon-law "pn] &
  *4 ,=! #aiic 6#bjjj tax,n ye>s1 =m]
  subsec;n #beb7#d7 (! ,act ext5d$ !
  m1n+ (! t]m 8sp\se0 69clude a -mon-law
  sp\se (! opposite sex4 ,e6ective 9
  #bjja1 ! ext5d$ m1n+ ( sp\se 9
  subsec;n #beb7#d7 has be5 replac$ )!
  t]m 8-mon-law "pn]0 9 subsec;n
  #bdh7#a7 : c n[ al 9clude a p]son (!
  same sex4 ,a transi;nal rule =! #aiih1
  #aiii & #bjjj tax,n ye>s all[$ same-
  sex c\ples 6elect 6be tr1t$ z -mon-law
  "pn]s "u ! ,act = ^? ye>s4 ,= m 9=m,n
  ab ! m1n+ (! t]ms 8sp\se0 & 8-mon-law
  "pn]01 see ! curr5t v].n (! ,g5]al
  ,9come ,tax & ,b5efit ,guide4 ,=
  purposes ( apply+ ! rules 9 subsec;ns
  #gj7#f7 & #gc7#a7 z 4cuss$ 9 p>agraph
  #ch1 see al ! ext5d$ m1n+ ( 8sp\se0 &
  8=m] sp\se0 9 subsec;n #beb7#c71 z x
  r1ds =! "picul> tax,n ye> 2+ 3sid]$4
  ,subsec;n #beb7#a71 z x r1ds =!
  "picul> tax,n ye> 2+ 3sid]$1       #aa
             ,,it-#abj;,r#f          f#b
  ext5ds ! m1n+ ( 8*0 = purposes (
  apply+ all
--------------------------------------#c
  ! rules 9 ! ,act1 9clud+ ! pr9cipal
  resid;e exemp;n rules1 = t ye>4

  ,x is al possi# =a p]sonal tru/ 6claim
  ! pr9cipal resid;e exemp;n on !
  4posi;n (a prop]ty4 ,? is 4cuss$ 9
  p>agraphs #ce & #ch4

        ,types ( ,prop]ty ,t ,c
         ,qualify z a ,pr9cipal
                ,resid;e
    
#c4 ,! foll[+ >e ! types ( prop]ty t c
  qualify z a 8pr9cipal resid;e03
  --a h\s+ unit1 : 9cludes3
    --a h\se1
    --an a"p;t or unit 9 a duplex1 a"p;t
      build+ or 3dom9ium1
    --a cottage1
    --a mobile home1
    --a trail]1 or                   #ab
             ,,it-#abj;,r#f          a#c
    --a h\seboat2
  --a l1sehold 9t]e/ 9 a h\s+ unit2 or
  --a %>e (! capital /ock (a co-op]ative
    h\s+ corpor,n1 if s* %>e is acquir$
    =! sole purpose ( obta9+ ! "r
    69habit a h\s+ unit [n$ 0t corpor,n4
    ,! t]m 8co-op]ative h\s+ corpor,n0
    m1ns an associ,n1 9corporat$ subject
    6! t]ms & 3di;ns (! legisl,n gov]n+
    s* 9corpor,n1 & =m$ & op]at$ =!
    purpose ( provid+ xs memb]s )! "r
    69habit1 0r1son ( [n]%ip ( %>es "!91
    a h\s+ unit [n$ 0! corpor,n4
  
  ,l& on : a h\s+ unit is situat$ c
  qualify z "p (a pr9cipal resid;e1
  subject 6c]ta9 re/ric;ns 7see
  p>agraphs #ad 6#bc74

          ,[n]%ip is ,requir$
    
#d4 ,=a prop]ty 6be a taxpay]'s pr9cipal
  resid;e =a "picul> ye>1 he or %e m/ [n
  ! prop]ty 9 ! ye>4 ,! m1n+ (       #ac
             ,,it-#abj;,r#f          b#c
  8[n]%ip ( prop]ty0 = ? purpose is
  4cuss$ 9 ! curr5t v].n ( ,,it-#dcg1
  ,[n]%ip ( ,prop]ty 7,pr9cipal
  ,resid;e74 ,! taxpay]'s [n]%ip (!
  prop]ty qualifies = purposes (! sec;n
  #ed def9i;n ( 8pr9cipal resid;e0 :e!r
  s* [n]%ip is 8jo9tly ) ano!r p]son or
  o!rwise04 ,^! latt] ^ws 9clude sole
  [n]%ip or a =m ( co-[n]%ip s* z jo9t
  t5ancy or t5ancy-in-common4

     ,! 8,ord9>ily ,9habit$0 ,rule
    
#e4 ,ano!r require;t is t ! h\s+ unit m/
  2 8ord9>ily 9habit$0 9 ! ye> 0!
  taxpay] or 0his or h] sp\se or -mon-
  law "pn]1 =m] sp\se or -mon-law "pn]1
  or *4

  ,! "q ( :e!r a h\s+ unit is ord9>ily
  9habit$ 9 ! ye> 0a p]son m/ 2 resolv$
  on ! basis (! facts 9 ea* "picul>
  case4 ,ev5 if a p]son 9habits a h\s+
  unit only =a %ort p]iod ( "t 9 !   #ad
             ,,it-#abj;,r#f          c#c
  ye>1 ? is su6ici5t =! h\s+ unit 6be
  3sid]$ 8ord9>ily 9habit$ 9 ! ye>0 0t
  p]son4 ,= example1 ev5 if a p]son
  4poses ( 8 or h] resid;e e>ly 9 ! ye>
  or acquires x late 9 ! ye>1 ! h\s+
  unit c 2 3sid]$ 6be ord9>ily 9habit$ 9
  ! ye> 0t p]son 0virtue ( 8 or h] liv+
  9 x 9 ! ye> 2f s* sale or af s*
  acquisi;n1 z ! case may be4 ,or1 =
  example1 a s1sonal resid;e c 2 3sid]$
  6be ord9>ily 9habit$ 9 ! ye> 0a p]son
  :o o3upies x only dur+ 8 or h] vac,n1
  provid$ t ! ma9 r1son = [n+ ! prop]ty
  is n 6ga9 or produce 9come4 ,) reg>d
  6! latt] /ipul,n1 a p]son rcvg only
  9cid5tal r5tal 9come f a s1sonal
  resid;e is n 3sid]$ 6[n ! prop]ty
  ma9ly =! purpose ( ga9+ or produc+
  9come4

  ,if ! h\s+ unit is n ord9>ily 9habit$
  9 ! ye> 0any (! abv-m5;n$ p]sons1 x is
  / possi# =! prop]ty 7z describ$ 9
  p>agraph #c7 6be 3sid]$ 6be !      #ae
             ,,it-#abj;,r#f          d#c
  taxpay]'s 8pr9cipal resid;e0 =! ye>1
  0m1ns ( an elec;n "u subsec;n #de7#b7
  or 7#c74 ,=a 4cus.n ( ^! provi.ns1 see
  p>agraphs #be 6#bi4

       ,design,n (a ,prop]ty z a
           ,pr9cipal ,resid;e
    
#f4 ,=a prop]ty 6be a taxpay]'s pr9cipal
  resid;e =a "picul> ye>1 he or %e m/
  designate x z s* =! ye> & no o!r
  prop]ty may h be5 s designat$ 0!
  taxpay] =! ye>4 ,fur!rmore1 no o!r
  prop]ty may h be5 designat$ z !
  pr9cipal resid;e ( any memb] (!
  taxpay]'s family unit =! ye>4 ,=
  purposes (! latt] rule1 : applies if !
  taxpay] is designat+ a prop]ty z 8 or
  h] pr9cipal resid;e = #aihb or a
  subsequ5t ye>1 ! taxpay]'s family unit
  =! ye> 9cludes1 9 a4i;n 6! taxpay]1 !
  foll[+ p]sons 7if any73
  --! taxpay]'s sp\se or -mon-law "pn]
    "?\t ! ye>1 un.s ! sp\se or      #af
             ,,it-#abj;,r#f          e#c
    -mon-law "pn] 0 "?\t ! ye> liv+ a"p
    f1 & 0 sep>at$ "u a judicial sep>,n
    or writt5 sep>,n agree;t f1 !
    taxpay]2
  --! taxpay]'s *n1 except ^? :o 7
    m>ri$1 9 a -mon-law "pn]%ip or #ah
    ye>s ( age or old] dur+ ! ye>2 &
  --": ! taxpay] 0 n m>ri$1 9 a -mon-law
    "pn]%ip or #ah ye>s ( age or old]
    dur+ ! ye>1
    --! taxpay]'s "m & "f1 &
    --! taxpay]'s bro!rs & si/]s :o 7 n
      m>ri$1 9 a -mon-law "pn]%ip or #ah
      ye>s ( age or old] dur+ ! ye>4
  ,z 4cuss$ 9 p>agraph #b1 =! #aiic
  6#bjjj tax,n ye>s1 a sp\se 9clud$ a
  -mon-law "pn] (! opposite sex4 ,acly1
  ^! 9dividuals w 2 3sid]$ a family unit
  =! purposes (! pr9cipal resid;e
  exemp;n =! #aiic & subsequ5t tax,n
  ye>s 7see ,example #b 9 ,app5dix ;,a74
  ,9 ! case ( same-sex -mon-law "pn]s1

                                     #ag
             ,,it-#abj;,r#f           #d
  !y w 2 3sid]$ a family unit =! #bjja &
  subsequ5t tax,n ye>s4 ,h["e1 if a
  same-sex c\ple fil$ a jo9t elec;n 6be
  tr1t$ z -mon-law "pn]s =! #aiih1 #aiii
  &/or #bjjj tax,n ye>s1 !n !y w 2
  3sid]$ a family unit = ^? ye>s4
#g4 ,ac 6sec;n #bcja (! ,9come ,tax
  ,regul,ns1 a taxpay]'s design,n (a
  prop]ty z a pr9cipal resid;e = "o or m
  tax,n ye>s is 6be made 9 8 or h] 9come
  tax return =! tax,n ye> 9 : he or %e
  has 4pos$ (! prop]ty or grant$ an op;n
  6ano!r p]son 6acquire ! prop]ty4 ,!
  design,n =m us$ = ? purpose is ,=m
  ,t#bjia7,,ind71 ,design,n (a ,prop]ty
  z a ,pr9cipal ,resid;e 0an ,9dividual
  7,o!r ,?an a ,p]sonal ,tru/74 ,h["e1 9
  a3ord.e ) \r practice1 ,=m
  ,t#bjia7,,ind7 ne$ n 2 -plet$ & fil$
  )! taxpay]'s 9come tax return un.s
  7a7 a taxa# capital ga9 on ! 4posi;n
    (! prop]ty rema9s af us+ ! pr9cipal
    resid;e exemp;n =mula 7z %[n 9
    p>agraph #h71 or                 #ah
             ,,it-#abj;,r#f          a#d
  7b7 =m ,t#ffd or ,t#ffd7,s5iors71
    ,elec;n 6,report a ,capital ,ga9 on
    ,prop]ty ,[n$ at ! ,5d ( ,febru>y
    #bb1 #aiid 0 fil$ ) respect 6!
    prop]ty 0! taxpay]1 or 8 or h] sp\se
    or -mon-law "pn]2 &! prop]ty 0 !
    taxpay]'s pr9cipal resid;e = #aiid1
    or x 0 designat$ 9 ! ye> z !
    pr9cipal resid;e = any tax,n ye>4
  
  ,note t if a taxpay] us+ ! pr9cipal
  resid;e exemp;n =mula 7z %[n 9
  p>agraph #h7 6elim9ate a ga9 on !
  4posi;n (a prop]ty is n1 2c (! abv-
  m5;n$ practice1 requir$ 6-plete & file
  ,=m ,t#bjia7,,ind71 he or %e is /
  3sid]$ 6h designat$ ! prop]ty z 8 or
  h] pr9cipal resid;e 7i4e41 6h claim$ !
  pr9cipal resid;e exemp;n = t prop]ty7
  =! ye>s 9 "q z f> z ! limit,ns 4cuss$
  e>li] 9 ? p>agraph >e 3c]n$4


                                     #ai
         ,calculat+ ! ,ga9 on !      b#d
     ,4posi;n (a ,pr9cipal ,resid;e
        --,! ,pr9cipal ,resid;e
                ,exemp;n
    
#h4 ,"u ! pr9cipal resid;e exemp;n
  provi.n 3ta9$ 9 p>agraph #dj7#b77b7 (!
  ,act1 a taxpay]'s ga9 f ! 4posi;n 7or
  deem$ 4posi;n7 ( any prop]ty t 0 8 or
  h] pr9cipal resid;e at any "t af 8 or
  h] 8acquisi;n date0 7see def9i;n 2l7 )
  respect 6! prop]ty1 is equal 6his or
  h] 8ga9 o!rwise det]m9$0 7see explan,n
  2l7 less two am.ts1 : >e describ$ lat]
  9 ? p>agraph4

  ,! taxpay]'s 8acquisi;n date0 )
  respect 6! prop]ty is ! lat] (! foll[+
  two dates3
  --,decemb] #ca1 #aiga1 &
  --! date on : ! taxpay] la/ acquir$ or
    reacquir$ ! prop]ty or is deem$ 6h
    la/ acquir$ or reacquir$ x4 7,note
    t1 0virtue ( subsec;n #dj7#g.a71 if
    a subsec;n #aaj.f7#ai7 capital   #bj
             ,,it-#abj;,r#f          c#d
    ga9s elec;n 0 made 9 respect (!
    prop]ty1 ! deem$ reacquisi;n (!
    prop]ty "u t elec;n is n 3sid]$ 6be
    a reacquisi;n = purposes ( det]m9+ !
    8acquisi;n date0 us$ 9 p>agraph
    #dj7#b77b747
  
  ,! taxpay]'s 8ga9 o!rwise det]m9$0
  m1ns ! am.t t ! ga9 7if any7 f !
  taxpay]'s 4posi;n 7or deem$ 4posi;n7
  (! prop]ty wd be--2f ! two reduc;ns
  describ$ lat] 9 ? p>agraph--if !
  capital ga9s elec;n provi.n 9 subsec;n
  #aaj.f7#ai7 &! relat$ provi.n 9
  subsec;n #aaj.f7#ba7 7 n tak5 96a3.t4
  ,?us1 if a subsec;n #aaj.f7#ai7
  capital ga9s elec;n has be5 made 9
  respect (! prop]ty1 ! taxpay]'s ga9
  o!rwise det]m9$ is calculat$ )\t
  ref];e 6! deem$ 4posi;n & reacquisi;n
  (! prop]ty "u t elec;n4 ,t is1 ! ga9
  o!rwise det]m9$ is calculat$ )\t tak+
  96a3.t ! 9cr1se 6! adju/$ co/ base (!
  prop]ty "u subsec;n #aaj.f7#ai7    #ba
             ,,it-#abj;,r#f          d#d
  or ! decr1se 6t adju/$ co/ base "u
  subsec;n #aaj.f7#ba74

  ,! f/ am.t 0: ! taxpay]'s ga9 o!rwise
  det]m9$ is reduc$ "u p>agraph
  #dj7#b77b7 is calculat$ 0us+ ! foll[+
  =mula3

  ;,a multipli$ 0;,b divid$ 0;,c

  ,! v>ia#s 9 ! abv =mula >e z foll[s3

  ;,a is ! taxpay]'s ga9 o!rwise
  det]m9$1 z describ$ abv4

  ;,b is #a plus ! numb] ( tax,n ye>s
  5d+ af ! acquisi;n date = : ! prop]ty
  0 ! taxpay]'s pr9cipal resid;e & dur+
  : he or %e 0 resid5t 9 ,canada4 7,note
  t bo? ^! 3di;ns m/ 2 satisfi$ =a
  "picul> ye> 9 ord] = t ye> 6qualify =
  9clu.n 9 ! num]ator ;,b47

                                     #bb
             ,,it-#abj;,r#f          e#d
  ;,c is ! numb] ( tax,n ye>s 5d+ af !
  acquisi;n date dur+ : ! taxpay] [n$ !
  prop]ty 7:e!r jo9tly ) ano!r p]son or
  o!rwise--see p>agraph #d74

  ,=a 4cus.n (! m1n+ ( 8resid5t 9
  ,canada01 see ! curr5t v].n (
  ,,it-#bba1 ,det]m9,n ( an ,9dividual's
  ,resid;e ,/atus4 ,! ^w 8dur+0 9 ref];e
  6a tax,n ye> m1ns 8at any "t in0 r ?an
  8"?\t ! :ole (0 ! tax,n ye>4

  ,! second am.t 0: ! taxpay]'s ga9
  o!rwise det]m9$ is reduc$ is %[n 9
  p>agraph #dj7#b77b7 z v>ia# ;,d & x is
  ref]r$ 6in ? bullet9 z ! 8capital ga9s
  elec;n reduc;n am.t04 ,x o3urs only if
  --! taxpay]'s acquisi;n date ) respect
    6! prop]ty 7z describ$ abv7 is 2f
    ,febru>y #bc1 #aiid1 &
  --! taxpay]1 or 8 or h] sp\se1 or
    -mon-law "pn] 7see p>agraph #g7b771
    made a subsec;n #aaj.f7#ai7 capital
    ga9s elec;n =! prop]ty or = an   #bc
             ,,it-#abj;,r#f          f#d
    9t]e/ 9 ! prop]ty--if s* an elec;n 0
    made1 ,=m ,t#ffd or ,t#ffd7,s5iors71
    ,elec;n 6,report a ,capital ,ga9 on
    ,prop]ty ,[n$ at ! ,5d ( ,febru>y
    #bb1 #aiid1 wd h be5 fil$4
--------------------------------------#e
  ,! 9clu.n (! #aaj.f7#ai7 elec;n am.t
  (a sp\se or -mon-law "pn] (! taxpay]1
  :5 calculat+ ! capital ga9s elec;n
  reduc;n am.t =! taxpay]1 5sures t any
  elect$ ga9 report$ 0! sp\se or -mon-
  law "pn] 9 #aiid ) respect 6a prop]ty
  t 0 subsequ5tly transf]r$ 6! taxpay]
  "? a sp\sal or -mon-law "pn] roll-ov]
  provi.n af ,febru>y #aiid1 is prop]ly
  reflect$ 9 ! ultimate 4posi;n (!
  prop]ty 0! taxpay]4 ,9 o!r ^ws1 9
  situ,ns ": a sp\se or -mon-law "pn]
  has transf]r$ prop]ty 6! taxpay]
  subsequ5t 6#aiid & pursuant 6! roll-
  ov] provi.ns ( subsec;n #gc7#a7 or
  #gj7#f71 ! calcul,n (! capital ga9s
  reduc;n am.t (! taxpay] at ! "t !
  prop]ty is sold1 m/ 9clude any     #bd
             ,,it-#abj;,r#f          a#e
  #aiid elect$ ga9 report$ 0! sp\se or
  -mon-law "pn] ) respect 6! transf]r$
  prop]ty4 ,qualify+ transf]s ( prop]ty
  "u ^! subsec;ns >e 4cuss$ lat] 9
  p>agraph #ch4

  ,! capital ga9s elec;n reduc;n am.t
  ess5ti,y repres5ts ! total am.t (!
  ga9s t result$ f ! taxpay]'s & 8 or h]
  sp\se or -mon-law "pn]'s capital ga9s
  elec;ns =! prop]ty1 af tak+ 96a3.t any
  reduc;n 9 calculat+ ^? ga9s 0virtue (!
  prop]ty hav+ be5 designat$ z !
  pr9cipal resid;e (! taxpay] or 8 or h]
  sp\se or -mon-law "pn] = any tax,n ye>
  up 6& 9clud+ ! tax,n ye> t 9clud$
  ,febru>y #bb1 #aiid4 ,! capital ga9s
  elec;n reduc;n am.t _c1 h["e1 2 m ?an
  s* ga9s--af tak+ 96a3.t any reduc;n
  "!to 0virtue (! prop]ty hav+ be5 !
  pr9cipal resid;e (! taxpay] or 8 or h]
  sp\se or -mon law "pn] = any tax,n ye>
  up 6& 9clud+ ! tax,n ye> t 9clud$
  ,febru>y #bb1 #aiid--t wd h        #be
             ,,it-#abj;,r#f          b#e
  result$ f s* capital ga9s elec;ns if !
  fair m>ket value (! prop]ty z at ! 5d
  ( ,febru>y #bb1 #aiid _h be5 us$ z !
  designat$ proce$s =! prop]ty4

  ,! taxpay] calculates 8 or h] capital
  ga9s elec;n reduc;n am.t on ,=m
  ,t#bjia7,,ind7-;,,ws1 ,pr9cipal
  ,resid;e ,"w%eet1 : ! taxpay] files )
  8 or h] ,t#bjia7,,ind7 design,n =m
  7see p>agraph #g74

  ,! rema9+ 4cus.ns 9 ? bullet9 reg>d+
  p>agraph #dj7#b77b7 >e 3c]n$ )! f/
  reduc;n 6! ga9 o!rwise det]m9$1 i4e41
  ! reduc;n provid$ = 0m1ns (! abv-m5;n$
  =mula1 ;,a multipli$ 0;,b divid$ by
  ;,c4 ,un.s /at$ 6! 3tr>y1 x is assum$
  = purposes ( ^? 4cus.ns t ! taxpay]
  did n make a capital ga9s elec;n & ?us
  t "! is no second reduc;n 6! ga9
  o!rwise det]m9$1 i4e41 no capital ga9s
  elec;n reduc;n am.t4
                                     #bf
       ,[n]%ip (a ,prop]ty 0,bo?     c#e
      ,sp\ses or ,-mon-,law ,"pn]s
    
#i4 ,": "! is a ga9 on ! 4posi;n (a
  prop]ty [n$ bo? 0a taxpay] & 8 or h]
  sp\se or -mon-law "pn] 9 "o (! =ms (
  [n]%ip describ$ 9 p>agraph #d1 bo?
  sp\ses or -mon-law "pn]s w g5],y h a
  ga9 on ! 4posi;n4 ,x %d 2 kept 9 m9d t
  if "o (! sp\ses or -mon-law "pn]s
  designates ! prop]ty z 8 or h]
  pr9cipal resid;e = any tax,n ye> af !
  #aiha ye>1 ! o!r sp\se or -mon-law
  "pn] w 2 a# 6designate only t same
  prop]ty z 8 or h] pr9cipal resid;e = t
  ye> if ! rule describ$ 9 p>agraph #f
  prev5ts hm or h] f s designat+ any o!r
  prop]ty = t ye>4

        ,m ,?an ,"o ,resid;e 9 a
              ,tax,n ,ye>
    
#aj4 ,:ile only "o prop]ty may 2
  designat$ z a taxpay]'s pr9cipal
  resid;e =a "picul> tax,n ye>       #bg
             ,,it-#abj;,r#f          d#e
  7see p>agraph #f71 ! pr9cipal resid;e
  exemp;n rules recognize t ! taxpay] c
  h two resid;es 9 ! same ye>1 i4e41 ":
  "o resid;e is sold & ano!r acquir$ 9 !
  same ye>4 ,! e6ect (! 8"o plus0 9
  v>ia# ;,b 7! num]ator (! frac;n7 9 !
  =mula 9 p>agraph #h is 6tr1t bo?
  prop]ties z a pr9cipal resid;e 9 s* a
  ye>1 ev5 ?\< only "o ( !m may 2
  designat$ z s* = t ye>4

       ,3/ruc;n (a ,h\s+ ,unit on
              ,vacant ,l&
    
#aa4 ,if a taxpay] acquires l& 9 "o
  tax,n ye> & 3/ructs a h\s+ unit on x 9
  a subsequ5t ye>1 ! prop]ty may n 2
  designat$ z ! taxpay]'s pr9cipal
  resid;e =! ye>s t >e prior 6! ye> 9 :
  ! taxpay]1 8 or h] sp\se or -mon-law
  "pn]1 =m] sp\se or -mon-law "pn]1 or *
  -m;es 6ord9>ily 9habit ! h\s+ unit4
  ,s* prior ye>s 7:5 ! taxpay] [n$ only
  ! vacant l& or ! l& )a h\s+ unit   #bh
             ,,it-#abj;,r#f          e#e
  "u 3/ruc;n7 wd n 2 9clud$ 9 ! num]ator
  ;,b 9 ! =mula 9 p>agraph #h 7or 9 !
  ye>s 9clud$ 9 ! /ate;t 9 p>agraph
  #bb7b774 ,h["e1 all ye>s1 -m5c+ )! ye>
  9 : ! taxpay] acquir$ ! vacant l&1 wd
  2 9clud$ 9 ! denom9ator ;,c4 ,"!=e1 x
  is possi# t :5 ! prop]ty is lat] 4pos$
  (1 only "p (! ga9 o!rwise det]m9$ w 2
  elim9at$ 0! pr9cipal resid;e exemp;n4

,example
  ,9 #aiib1 ,mr4 ;,a acquir$ vacant l& =
  4#be1jjj4 ,9 #aiie1 he 3/ruct$ a h\s+
  unit on ! l&1 co/+ 4#ge1jjj1 & />t$
  6ord9>ily 9habit ! h\s+ unit4 ,9
  #bjja1 he 4pos$ (! prop]ty =
  4#aej1jjj4 ,mr4 ;,a's ga9 o!rwise
  det]m9$ on ! 4posi;n (! prop]ty is
  equal 6his 4#aej1jjj proce$s m9us 8
  4#ajj1jjj adju/$ co/ base equals
  4#ej1jjj 7assume "! 7 no co/s (
  4posi;n74 ,mr4 ;,a c designate !
  prop]ty z 8 pr9cipal resid;e =! ye>s
  #aiie 6#bjja 9clusive1 b n =!      #bi
             ,,it-#abj;,r#f          f#e
  ye>s #aiib 6#aiid 9clusive 2c no "o
  liv$ 9 a h\s+ unit on ! prop]ty dur+
  ^? ye>s4 ,! pr9cipal resid;e exemp;n
  =mula 9 p>agraph #h _c1 "!=e1 elim9ate
  8 5tire 4#ej1jjj ga9 o!rwise
--------------------------------------#f
  det]m9$1 b r c elim9ate only 4#dj1jjj
  ( t ga93

  ;,a multipli$ 0;,b divid$ 0;,c equals
  4#ej1jjj multipli$ 0#a plus #g 7#aiie
  6#bjja7 divid$ 0#aj 7#aiib 6#bjja7
  equals 4#dj1jjj

     ,prop]ty ,[n$ on ,decemb] #ca1
                 #aiha
    
#ab4 ,a prop]ty may n 2 designat$ z a
  taxpay]'s pr9cipal resid;e = any tax,n
  ye> af ! #aiha ye> if ano!r prop]ty
  has be5 designat$ = t ye> z ! pr9cipal
  resid;e ( ano!r memb] ( 8 or h] family
  unit 7= fur!r "picul>s on ? rule1 see
  p>agraph #f74 ,if ! taxpay]        #cj
             ,,it-#abj;,r#f          a#f
  4poses (a prop]ty he or %e has [n$
  7:e!r jo9tly ) ano!r p]son or o!rwise7
  3t9u\sly s9ce 2f #aihb &! prop]ty _c 2
  designat$ z ! taxpay]'s pr9cipal
  resid;e = "o or m ye>s af ! #aiha ye>
  2c (! abv-m5;n$ rule1 a transi;nal
  provi.n 9 subsec;n #dj7#f7 puts a cap
  on ! am.t (! taxpay]'s ga9 7if any7 on
  ! 4posi;n4 ,app5dix ;,a at ! 5d ( ?
  bullet9 provides examples : illu/rate
  h[ ! rule 9 subsec;n #dj7#f7 "ws4

         ,loss on ! ,4posi;n (a
                ,resid;e
    
#ac4 ,a prop]ty : is us$ prim>ily z a
  resid;e 7i4e41 =! p]sonal use & 5joy;t
  ( ^? liv+ 9 x7--or an op;n 6acquire a
  prop]ty : wd1 if acquir$1 2 s us$--is
  8p]sonal-use prop]ty04 ,"!=e1 a loss
  on ! 4posi;n ( s* a prop]ty or op;n is
  deem$ 6be nil 0virtue ( subp>agraph
  #dj7#b77g77;iii74
                                     #ca
        ,l& ,3tribut+ 6! ,use &      b#f
       ,5joy;t (! ,h\s+ ,unit z a
                ,resid;e
    
#ad4 ,0virtue ( p>agraph 7e7 (! sec;n
  #ed def9i;n ( 8pr9cipal resid;e01 a
  taxpay]'s pr9cipal resid;e =a tax,n
  ye> % 2 deem$ 69clude1 except ": !
  prop]ty 3si/s (a %>e (! capital /ock
  (a co-op]ative h\s+ corpor,n1 ! l& ^u
  : ! h\s+ unit /&s & any por;n (!
  adjo9+ l& t c r1sonably 2 reg>d$ z
  3tribut+ 6! use & 5joy;t (! h\s+ unit
  z a resid;e4 ,evid;e is n usu,y
  requir$ 6e/abli% t "o-half hect>e ( l&
  or less1 9clud+ ! >ea on : ! h\s+ unit
  /&s1 3tributes 6! use & 5joy;t (! h\s+
  unit z a resid;e4 ,h["e1 ": a por;n (
  t l& is us$ 6e>n 9come f busi;s or
  prop]ty1 s* por;n w n usu,y 2 3sid]$
  63tribute 6s* use & 5joy;t4 ,": !
  taxpay] claims a por;n (! exp5ses
  relat$ 6! l& 7s* z prop]ty taxes or
  mortgage 9t]e/7 9 -put+ 9come1 !
  alloc,n ( s* exp5ses = ? purpose   #cb
             ,,it-#abj;,r#f          c#f
  is norm,y an 9dic,n (! ext5t 6: he or
  %e 3sid]s ! l& 6be us$ 6e>n 9come4

       ,l& 9 ,excess ( ,"o-,half
                ,hect>e
    
#ae4 ,": ! total >ea (! l& ^u : a h\s+
  unit is situat$ exce$s "o-half hect>e1
  ! excess l& is deem$ 0p>agraph 7e7 (!
  sec;n #ed def9i;n ( 8pr9cipal resid;e0
  n 6h 3tribut$ 6! use & 5joy;t (! h\s+
  unit z a resid;e & ?us w n qualify z
  "p (a pr9cipal resid;e1 except 6!
  ext5t t ! taxpay] e/abli%es t x 0 nec
  = s* use & 5joy;t4 ,! excess l& m/
  cle>ly 2 nec =! h\s+ unit 6prop]ly
  fulfill xs func;n z a resid;e & n
  simply 2 desira#4 ,g5],y1 ! use ( l& 9
  excess ( "o-half hect>e 9 3nec;n )a
  "picul> recre,n or life/yle 7s* z =
  keep+ pets or = c.try liv+7 does n m1n
  t ! excess l& is nec =! use & 5joy;t
  (! h\s+ unit z a resid;e4
                                     #cc
             ,,it-#abj;,r#f          d#f
  ,l& 9 excess ( "o-half hect>e may 2
  3sid]$ nec ": ! size or "* (a h\s+
  unit tgr ) xs loc,n on ! lot make s*
  excess l& ess5tial 6xs use & 5joy;t z
  a resid;e1 or ": ! loc,n (a h\s+ unit
  requires s* excess l& 9 ord] 6provide
  xs o3upants ) a3ess 6& f public roads4
  ,o!r factors may 2 relevant 9 det]m9+
  :e!r l& 9 excess ( "o-half hect>e is
  nec =! use & 5joy;t (! h\s+ unit z a
  resid;e1 s* z1 = example1 a m9imum lot
  size or a s"e.e or subdivi.n re/ric;n
  7see p>agraph #af74 ,9 all cases1
  h["e1 x is a "q ( fact z 6h[ m*1 if
  any1 (! excess l& is nec =! use &
  5joy;t (! h\s+ unit z a resid;e4
#af4 ,9 ord] 6acquire a prop]ty = use z
  a resid;e1 a taxpay] may 2 requir$ 0a
  law or regul,n (a municipal;y or
  prov9ce ) respect 6resid5tial lots
  6acquire m ?an "o-half hect>e (!
  prop]ty4 ,s* a law or regul,n cd1 =
  example1
                                     #cd
             ,,it-#abj;,r#f          e#f
  7a7 require a m9imum lot size =a
    resid5tial lot 9 a "picul> >ea1 or
  7b7 impose a s"e.e or subdivi.n
    re/ric;n ) respect 6resid5tial lots
    9 a "picul> >ea4
  
  ,6! ext5t t a taxpay]1 9 ord] 6acquire
  a prop]ty z a resid;e1 is requir$ 2c (
  s* a law or regul,n 6acquire l& t
  exce$s "o-half hect>e1 ! l& t m/ 2 s
  acquir$ is g5],y 3sid]$ 6be nec =! use
  & 5joy;t (! h\s+ unit z a resid;e "?\t
  ! p]iod t ! prop]ty is 3t9u\sly [n$ 0!
  taxpay] af ! acquisi;n date4 ,h["e1 x
  %d 2 not$ t ! m]e exi/;e ( s* a
  municipal law or regul,n on ! date !
  taxpay] acquir$ ! prop]ty does n immly
  qualify ! excess l& = purposes (!
  pr9cipal resid;e exemp;n4 ,= example1
  if ! taxpay] cd h made an applic,n =
  s"e.e (! excess l& & x is likely t s*
  a reque/ wd h be5 approv$1 ! taxpay]
  wd g5],y n 2 3sid]$ 6h be5 requir$
  6acquire ! excess l&4              #ce
             ,,it-#abj;,r#f          f#f
  ,fur!rmore1 reg>d.s (! abv1 ": any
  por;n (! l& 9 excess ( "o-half hect>e
  is n us$ = resid5tial purposes b r =
  9come-produc+
--------------------------------------#g
  purposes1 s* por;n is usu,y n 3sid]$
  6be nec =! use & 5joy;t (! h\s+ unit z
  a resid;e4

     ,4posi;n ( ,b>e ,l& 9 ,excess
          ( ,"o-,half ,hect>e
    
#ag4 ,if ! h\s+ unit is situat$ on l& 9
  excess ( "o-half hect>e & "p or all (
  t excess l& is s"e$ f ! prop]ty &
  sold1 ! l& sold is g5],y 3sid]$ n 6be
  "p (! pr9cipal resid;e un.s ! h\s+
  unit c no l;g] 2 us$ z a resid;e due
  6! l& sale4 ,if ! h\s+ unit c / 2 s
  us$1 s* a sale 9dicates t ! l& sold 0
  n nec =! use & 5joy;t (! h\s+ unit z a
  resid;e4

                                     #cf
             ,,it-#abj;,r#f          a#g
  ,circum/.es or ev5ts 2y ! taxpay]'s
  3trol may cause a por;n (! l& 6c1se
  6be nec =! use & 5joy;t (! h\s+ unit z
  a resid;e 7e4g41 a m9imum lot size
  require;t or s"e.e or subdivi.n
  re/ric;n 9 e6ect at ! date ( acquisi;n
  is subsequ5tly relax$74 ,if ! taxpay]
  !n subdivides ! excess l&1 x w 2
  3sid]$ 6h be5 8nec0 until ! "t ( xs
  subdivi.n4 ,af subdivi.n1 ea* newly
  cr1t$ lot is a sep>ate prop]ty & only
  ! prop]ty on : ! h\s+ unit is locat$
  may 3t9ue 6be designat$ z ! taxpay]'s
  pr9cipal resid;e4 ,fur!rmore1 x is
  possi# =! vacant l& : previ\sly =m$ "p
  (! pr9cipal resid;e 6be 3sid]$ 6h be5
  3v]t$ 69v5tory at ! "t (! subdivi.n
  7see ! rules on "pial *anges ( use 9
  p>agraph #cj74




                                     #cg
      ,4posi;n ( ,"p (a ,pr9cipal    b#g
                ,resid;e
    
#ah4 ,": only a por;n (a prop]ty
  qualify+ z a taxpay]'s pr9cipal
  resid;e is 4pos$ ( 7e4g4 ! grant+ ( an
  ease;t or ! expropri,n ( l&71 !
  prop]ty may 2 designat$ z ! taxpay]'s
  pr9cipal resid;e 9 ord] 6use !
  pr9cipal resid;e exemp;n =! por;n (!
  prop]ty 4pos$ (4 ,x is important 6note
  t s* a design,n is made on ! 5tire
  prop]ty 79clud+ ! h\s+ unit7 t
  qualifies z ! pr9cipal resid;e1 & n j
  on ! por;n (! prop]ty 4pos$ (4 ,acly1
  :5 ! rema9d] (! prop]ty is subsequ5tly
  4pos$ (1 x too w 2 recogniz$ z !
  taxpay]'s pr9cipal resid;e =! tax,n
  ye>s = : ! abv-m5;n$ design,n 0 made4
  ,no o!r prop]ty may 2 designat$ z a
  pr9cipal resid;e = any ( ^? ye>s 0!
  taxpay] 7or1 = any ( ^? ye>s t >e af !
  #aiha tax,n ye>1 0! taxpay] or any (!
  o!r memb]s ( 8 or h] family unit7 z
  4cuss$ 9 p>agraph #f4              #ch
        ,4posi;n (a ,prop]ty ,":     c#g
     ,only ,"p ( ,x ,qualifies z a
           ,pr9cipal ,resid;e
    
#ai4 ,9 "s cases1 only a por;n (a
  prop]ty t is 4pos$ (=a ga9 w qualify z
  a pr9cipal resid;e 7see p>agraphs #ad
  6#af74 ,if s* qualify+ por;n (!
  prop]ty is designat$ z ! taxpay]'s
  pr9cipal resid;e1 x w 2 nec 6calculate
  ! ga9 on s* por;n sep>ately f ! ga9 on
  ! rema9+ por;n (! prop]ty : does n
  qualify z ! taxpay]'s pr9cipal
  resid;e4 ,? is 2c ! ga9 o!rwise
  det]m9$ on ! por;n (! prop]ty
  designat$ z ! pr9cipal resid;e may 2
  reduc$ or elim9at$ 0! pr9cipal resid;e
  exemp;n1 ":as ! ga9 on ! rema9+ por;n
  (! prop]ty results 9 a taxa# capital
  ga94 ,! alloc,n (! proce$s ( 4posi;n &
  adju/$ co/ base (! total prop]ty 2t !
  two por;ns does n necess>ily h 6be on
  ! basis ( >ea--3sid],n %d 2 giv5 6any
  factors : cd h an e6ect on ! relative
  value ( ei (! two por;ns4          #ci
             ,,it-#abj;,r#f          d#g
,example
  ,mr4 ;,a's h\se is on a prop]ty )a
  total l& >ea ( ?ree-qu>t]s (a hect>e4
  ,he sells ! prop]ty at fair m>ket
  value & r1lizes an actual ga9 on !
  4posi;n4 ,! h\se & "o-half hect>e ( l&
  qualify z 8 pr9cipal resid;e = all !
  ye>s he has [n$ x4 ,! extra "o-qu>t]
  hect>e does n qualify z "p ( 8
  pr9cipal resid;e = ^! r1sons3
    --,"! has n"e be5 any law or regul,n
      requir+ ! extra "o-qu>t] hect>e
      6be "p (! prop]ty z a resid;e 7see
      p>agraph #af7--x has alw be5 s"ea#
      f ! "o-half hect>e on : ! h\se is
      situat$4
    --,"! has n"e be51 z elaborat$ on
      2l1 any o!r valid r1son = 3sid]+ !
      extra "o-qu>t] hect>e 6be nec =!
      use & 5joy;t (! h\se z a resid;e
      7see p>agraph #ae74
  ,if ! extra "o-qu>t] hect>e 7 s"e$1 x
  wd / 2 a3essi# f ! road 0: ! pr9cipal
  resid;e's "o-half hect>e is        #dj
             ,,it-#abj;,r#f          e#g
  a3ess$4 ,h["e1 x wd 2 di6icult 6sell !
  extra "o-qu>t] hect>e on xs [n 2c x
  =ms "p (a %all[ gully "? : a small
  brook fl[s4 ,9 fact1 ! only f1si# use
  =! extra "o-qu>t] hect>e is 65h.e !
  5joy;t ( ,mr4 ;,a's resid;e or1 if
  s"e$1 ! resid;e ( 8 next door nei<b\r1
  i4e41 0provid+ ! [n] )! 5joy;t ( s*
  a4i;nal l& ) xs natural b1uty4
  ,n"e!.s1 ! extra "o-qu>t] hect>e is n
  nec =! use & 5joy;t ( ,mr4 ;,a's h\se
  z a resid;e4 ,note t 9 ^! circum/.es1
  ! por;n ( ,mr4 ;,a's ga9 t is 3sid]$
  6p]ta9 6! extra "o-qu>t] hect>e may n
  simply 2 "o-?ird (! ga9 p]ta9+ 6!
  5tire ?ree-qu>t]s (a hect>e ( l& he
  sold1 b wd probably 2 a l[] am.t 7a
  det]m9,n (! actual am.t 9 s* a case cd
  require a r1l e/ate appraisal74

  ,! -;ts 9 ? p>agraph d n apply if !
  prop]ty 9cludes l& us$ 9 a f>m+ busi;s
  7see 9/1d p>agraphs #bj 6#bc74
                                     #da
     ,pr9cipal ,resid;e on ,l& ,us$   #h
           9 a ,f>m+ ,busi;s
    
#bj4 ,if a taxpay] 4poses ( l& us$ 9 a
  f>m+ busi;s : he or %e c>ri$ on at any
  "t & s* l& 9cludes prop]ty t 0 at any
  "t 8 or h] pr9cipal resid;e1 p>agraph
  #dj7#b77c7 (! ,act provides t any ga9
  on ! 4posi;n (! l& may 2 calculat$ us+
  ei (! two me?ods 4cuss$ 2l4 ,x %d 2
  not$ t ! ref];e to 8l&0 9 p>agraph
  #dj7#b77c7 9cludes ! build+s "!on4
#ba4 ,f/ ,me?od3 ,! taxpay] may reg>d !
  prop]ty z 2+ divid$ 96two por;ns3 !
  pr9cipal resid;e por;n &! rema9+
  por;n1 "p or all ( : 0 us$ 9 ! f>m+
  busi;s4 ,! proce$s ( 4posi;n & adju/$
  co/ base (! total prop]ty m/ 2
  allocat$ on a r1sona# basis 2t ! two
  por;ns 9 ord] 6det]m9e ! ga9 = ea*
  por;n4 ,! ga9 o!rwise det]m9$ =!
  pr9cipal resid;e por;n may 2 reduc$ or
  elim9at$ 0! pr9cipal resid;e exemp;n
  provid$ = 9 p>agraph #dj7#b77b7 (!
  ,act1 z describ$ 9 p>agraph #h     #db
             ,,it-#abj;,r#f          a#h
  79clud+1 if applica#1 ! capital ga9s
  elec;n reduc;n am.t1 i4e41 v>ia# ;,d 9
  p>agraph #dj7#b77b772 ! ga9 on !
  rema9d] (! prop]ty results 9 a taxa#
  capital ga9 7see1 h["e1 p>agraph #bd74
  ,= purposes ( det]m9+ :at por;n (!
  proce$s ( 4posi;n (! l& may r1sonably
  2 allocat$ 6! pr9cipal resid;e1 x is
  \r usual practice 6a3ept ! grt] (!
  foll[+ two am.ts3
  7a7 ! fair m>ket value1 z (! date (
    4posi;n (! l&1 ( "o-half hect>e ( l&
    e/imat$ on ! basis ( -p>a# sales (
    simil> f>m prop]ties 9 ! same >ea 7!
    fair m>ket value ( m ?an "o-half
    hect>e cd 2 us$ 6! ext5t t s* excess
    l& 0 nec =! use & 5joy;t (! h\s+
    unit z a resid;e--see p>agraphs #ae
    & #af72 &
  7b7 ! fair m>ket value1 z (! date (
    4posi;n (! l&1 (a typical resid5tial
    lot 9 ! same >ea4
  
                                     #dc
             ,,it-#abj;,r#f          b#h
  ,:i*"e basis is *os51 7a7 or 7b71 =
  allocat+ a por;n (! proce$s ( 4posi;n
  (! l& 6! pr9cipal resid;e1 ! same
  basis %d 2 us$ 6allocate a por;n (!
  adju/$ co/ base (! l& 6! pr9cipal
  resid;e4 ,= purposes ( mak+ ? alloc,n
  (! l&'s adju/$ co/ base1 ! fair m>ket
  value (! l& ref]r$ 6in 7a7 or 7b71 z !
  case may be1 wd 2 z (! taxpay]'s
  acquisi;n date =! l& r ?an z (! date (
  xs 4posi;n4

  ,app5dix ;,b at ! 5d ( ? bullet9
  provides an example : illu/rates ! use
  (! f/ me?od all[$ "u p>agraph
  #dj7#b77c74
#bb4 ,second ,me?od3 ,! taxpay] may
  elect "u subp>agraph #dj7#b77c77;ii7
  6-pute ! ga9 on ! 4posi;n (! total
  prop]ty 79clud+ ! prop]ty t 0 !
  pr9cipal resid;e7 )\t mak+ ! alloc,ns
  describ$ abv or us+ ! pr9cipal resid;e
  exemp;n provid$ = 9 p>agraph
  #dj7#b77b7 (! ,act z describ$ 9    #dd
             ,,it-#abj;,r#f          c#h
  p>agraph #h4 ,) reg>d 6? elec;n "u
  subp>agraph #dj7#b77c77;ii7 (! ,act1
  sec;n #bcjj (! ,9come ,tax ,regul,ns
  requires t a lr sign$ 0! taxpay] 2
  atta*$ 6! 9come tax return fil$ =!
  tax,n ye> 9 : ! 4posi;n (! prop]ty
  took place4 ,! lr %d 3ta9 ! foll[+
  9=m,n3
  7a7 a /ate;t t ! taxpay] is elect+ "u
    subp>agraph #dj7#b77c77;ii7 (! ,act2
  7b7 a /ate;t (! numb] ( tax,n ye>s 5d+
    af ! acquisi;n date = : ! prop]ty 0
    ! taxpay]'s pr9cipal resid;e & dur+
    : he or %e 0 resid5t 9 ,canada 7=!
    m1n+s ( 8resid5t 9 ,canada0 &
    8dur+01 see p>agraph #h72 &
  7c7 a descrip;n (! prop]ty su6ici5t
    6id5tify x )! prop]ty designat$ z !
    taxpay]'s pr9cipal resid;e4
  
  ,"u ! subp>agraph #dj7#b77c77;ii7
  elec;n1 ! ga9 on ! 4posi;n (! total
  prop]ty is equal 6! ga9 o!rwise
  det]m9$ less ! total ( 4#a1jjj     #de
             ,,it-#abj;,r#f          d#h
  plus 4#a1jjj = ea* tax,n ye> 9 7b7
  abv4 ,two po9ts %d 2 not$ = purposes (
  calculat+ ! ga9 "u subp>agraph
  #dj7#b77c77;ii73
  --,! 8acquisi;n date0 m5;n$ 9 7b7 is !
    lat] (
    --,decemb] #ca1 #aiga2 &
    --! date on : ! taxpay] la/ acquir$
      or reacquir$ ! prop]ty or is deem$
      6h la/ acquir$ or reacquir$ x4 ,if
      ! taxpay] made a subsec;n
      #aaj.f7#ai7 capital ga9s elec;n 9
      respect (! prop]ty1 ! deem$
      reacquisi;n (! prop]ty immly af !
      5d ( ,febru>y #bb1 #aiid "u t
      elec;n is 3sid]$ 6be a reacquisi;n
      = purposes ( det]m9+ ! 8acquisi;n
      date0 :5 calculat+ ! ga9 o!rwise
      det]m9$4 ,! r1son = ? is t1 al?
      subsec;n #dj7#g.a7 prev5ts a
      subsec;n #aaj.f7#ai7 deem$
      reacquisi;n f 2+ 3sid]$ a
      reacquisi;n = purposes ( det]m9+ !
      8acquisi;n date0 us$ 9         #df
             ,,it-#abj;,r#f          e#h
      p>agraph #dj7#b77b7 7z 9dicat$ 9
      p>agraph #h71 nei subsec;n
      #dj7#g.a7 nor any o!r provi.n
      prev5ts a subsec;n #aaj.f7#ai7
      deem$ reacquisi;n f 2+ 3sid]$ a
      reacquisi;n = purposes ( det]m9+ !
      8acquisi;n date0 us$ 9 subp>agraph
      #dj7#b77c77;ii74
  --,if ! 8acquisi;n date0 is 9 fact !
    date (! deem$ reacquisi;n "u a
    subsec;n #aaj.f7#ai7 capital ga9s
    elec;n1 i4e41 immly af ! 5d (
    ,febru>y #bb1 #aiid1 ! ga9 o!rwise
    det]m9$ is calculat$ 0tak+ 96a3.t !
    taxpay]'s co/ (! prop]ty "u t deem$
    reacquisi;n r ?an 8 or h] actual co/
    at "s e>li] date4 7,v>ia# ;,a 9
    p>agraph #dj7#b77b71 z 4cuss$ 9
    p>agraph #h1 does n apply =!
    purposes ( subp>agraph
    #dj7#b77c77;ii747
  

                                     #dg
             ,,it-#abj;,r#f          f#h
    ,app5dix ;,b at ! 5d ( ? bullet9
    provides an example : illu/rates !
    use (! second me?od all[$ "u
    p>agraph #dj7#b77c74
--------------------------------------#i
#bc4 ,:5 ! second me?od is us$1 !
  exemp;n ( 4#a1jjj p] ye>1 : is 6all[
  =! fact t a por;n (! total prop]ty
  p]ta9s 6! pr9cipal resid;e r ?an !
  f>m1 is n reduc$ ": "p (! resid;e xf
  is us$ 6e>n 9come 7e4g41 "! cd 2 an
  (fice 9 ! h\se : is us$ 9 3nec;n )a
  busi;s74 ,h["e1 any ga9 or recapture (
  capital co/ all[.e p]ta9+ 6! por;n (!
  resid;e 7i4e41 build+7 s us$ 6e>n
  9come 7ei or bo? ( : c o3ur1 =
  example1 ": ! use ( s* por;n (!
  resid;e is *ang$ back f 9come-produc+
  6non-9come-produc+--see p>agraphs #cj
  & #cd7 _c 2 reduc$ 0! 4#a1jjj p] ye>
  exemp;n4
#bd4 ,": an 9dividual has a taxa#
  capital ga9 f ! 4posi;n (a f>m
  prop]ty1 a sec;n #aaj.f capital    #dh
             ,,it-#abj;,r#f          a#i
  ga9s deduc;n 7: is a deduc;n 9
  calculat+ taxa# 9come7 may 2 possi# on
  ! basis t ! prop]ty is qualifi$ f>m
  prop]ty4 ,= fur!r "picul>s on ? topic1
  see ei ! ,f>m+ ,9come tax guide or !
  ,f>m+ ,9come & ,,nisa tax guide4

        ,-plete ,*ange 9 ,use (a
     ,prop]ty ,f ,pr9cipal ,resid;e
            6,9come-,produc+
    
#be4 ,if a taxpay] has -pletely 3v]t$ 8
  or h] pr9cipal resid;e 6an 9come-
  produc+ use1 he or %e is deem$
  0p>agraph #de7#a77a7 6h 4pos$ (!
  prop]ty 7bo? l& & build+7 at fair
  m>ket value 7,,fmv7 & reacquir$ x
  immly "!af at ! same am.t4 ,any ga9
  o!rwise det]m9$ on ? deem$ 4posi;n may
  2 elim9at$ or reduc$ 0! pr9cipal
  resid;e exemp;n4 ,! taxpay] may 9/1d1
  h["e1 def] recogni;n ( any ga9 6a lat]
  ye> 0elect+ "u subsec;n #de7#b7 6be
  deem$ n 6h made ! *ange 9 use (!   #di
             ,,it-#abj;,r#f          b#i
  prop]ty4 ,? elec;n is made 0m1ns (a lr
  6t e6ect sign$ 0! taxpay] & fil$ )!
  9come tax return =! ye> 9 : ! *ange 9
  use o3urr$4 ,if ! taxpay] resc9ds !
  elec;n 9 a subsequ5t tax,n ye>1 he or
  %e is deem$ 6h 4pos$ (& reacquir$ !
  prop]ty at ,,fmv on ! f/ "d ( t
  subsequ5t ye> 7)! abv-m5;n$ tax
  3sequ;es74 ,if capital co/ all[.e
  7,,cca7 is claim$ on ! prop]ty1 !
  elec;n is 3sid]$ 6be resc9d$ on ! f/
  "d (! ye> 9 : t claim is made4

  ,subsec;n #bbj7#c.b7 (! ,act1 9
  3junc;n ) sec;n #fjj (! ,9come ,tax
  ,regul,ns1 provides ! au?or;y =!
  ,canada ,cu/oms & ,rev5ue ,ag5cy 7!
  ,,ccra7 6a3ept a late-fil$ subsec;n
  #de7#b7 elec;n4 ,s* a late-fil$ elec;n
  may 2 a3ept$ "u c]ta9 circum/.es1 "o (
  : is t no ,,cca has be5 claim$ on !
  prop]ty s9ce ! *ange 9 use has o3urr$
  & dur+ ! p]iod 9 : ! elec;n is 6rema9
  9 =ce4 ,= fur!r "picul>s on !      #ej
             ,,it-#abj;,r#f          c#i
  a3ept.e ( late-fil$ elec;ns1 see !
  curr5t v].n ( ,9=m,n ,circul> #ib-a1
  ,guidel9es = ,a3ept+ ,late1 ,am5d$ or
  ,revok$ ,elec;ns4
#bf4 ,a prop]ty c qualify z a taxpay]'s
  pr9cipal resid;e = up 6f\r tax,n ye>s
  dur+ : a subsec;n #de7#b7 elec;n
  rema9s 9 =ce1 ev5 if ! h\s+ unit is n
  ord9>ily 9habit$ dur+ ^? ye>s 0!
  taxpay] or 0his or h] sp\se or -mon-
  law "pn]1 =m] sp\se or -mon-law "pn]1
  or * 7see p>agraph #e74 ,h["e1 !
  taxpay] m/ 2 resid5t1 or deem$ 6be
  resid5t1 9 ,canada dur+ ^? ye>s =!
  full b5efit (! pr9cipal resid;e
  exemp;n 6apply 7see ! num]ator ;,b 9 !
  =mula 9 p>agraph #h or ! ye>s 9clud$ 9
  ! /ate;t 9 p>agraph #bb7b71 z ! case
  may be74 ,x %d al 2 not$ t ! rule
  describ$ 9 p>agraph #f prev5ts !
  design,n ( m ?an "o prop]ty z a
  pr9cipal resid;e = any "picul> ye> 0!
  taxpay] 7or1 = any "picul> ye> af !
  #aiha tax,n ye>1 0! taxpay] or     #ea
             ,,it-#abj;,r#f          d#i
  any o!r memb] ( 8 or h] family unit74
  ,?us1 = example1 a taxpay]'s design,n
  =! same ye> ( "o prop]ty 0virtue (a
  subsec;n #de7#b7 elec;n 2+ 9 =ce1 &
  ano!r prop]ty 0virtue (! fact t he or
  %e ord9>ily 9habit$ t o!r prop]ty1 wd
  n 2 p]mitt$4

,example
  ,mr4 ;,a & 8 family liv$ 9 a h\se =a
  numb] ( ye>s until ,septemb] #cj1
  #aiic4 ,f ,octob] #a1 #aiic until ,m>*
  #ca1 #aiih !y liv$ else": & ,mr4 ;,a
  r5t$ ! h\se 6a ?ird "py4 ,on ,april
  #a1 #aiih1 !y mov$ back 96! h\se &
  liv$ 9 x until x 0 sold 9 #bjja4 ,:5
  he fil$ 8 #bjja 9come tax return1 ,mr4
  ;,a designat$ ! h\se z 8 pr9cipal
  resid;e =! #aiid 6#aiig tax,n ye>s
  9clusive 7i4e41 ! maximum f\r ye>s7
  0virtue (a subsec;n #de7#b7 elec;n 7:
  he _h alr fil$ ) 8 #aiic 9come tax
  return7 hav+ be5 9 =ce = ^? ye>s4 7,he
  0 a# 6make ? design,n 2c no o!r    #eb
             ,,it-#abj;,r#f          e#i
  prop]ty _h be5 designat$ z a pr9cipal
  resid;e 0hm or a memb] ( 8 family unit
  = ^? ye>s47 ,he designat$ ! h\se z 8
  pr9cipal resid;e = all ! o!r ye>s 9 :
  he [n$ x 0virtue ( 8 hav+ ord9>ily
  9habit$ x dur+ ^? ye>s1 9clud+ ! #aiic
  & #aiih ye>s4 ,hav+ be5 resid5t 9
  ,canada at all "ts1 ,mr4 ;,a's ga9
  o!rwise det]m9$ on ! 4posi;n (! h\se 9
  #bjja was1 "!=e1 -pletely elim9at$ 0!
  pr9cipal resid;e exemp;n4

  ,any 9come 9 respect (a prop]ty 7e4g41
  ! r5tal 9come 9 ! abv example71 net (
  applica# exp5ses1 m/ 2 report$ = tax
  purposes4 ,h["e1 = tax,n ye>s cov]$ 0a
  subsec;n #de7#b7 elec;n1 ,,cca %d n 2
  claim$ on ! prop]ty 7see p>agraph
  #be74
#bg4 ,sec;n #ed.a removes ! abv-m5;n$
  f\r-ye> limit,n = tax,n ye>s cov]$ 0a
  subsec;n #de7#b7 elec;n if all (!
  foll[+ 3di;ns >e met3
                                     #ec
             ,,it-#abj;,r#f          f#i
  7a7 ! taxpay] does n ord9>ily 9habit !
    h\s+ unit dur+ ! p]iod cov]$ 0!
    elec;n 2c ! taxpay]'s or 8 or h]
    sp\se's or -mon-law "pn]'s place (
    employ;t has be5 relocat$2
-------------------------------------#aj
  7b7 ! employ] is n relat$ 6! taxpay]
    or 8 or h] sp\se or -mon-law "pn]2
  7c7 ! h\s+ unit is at l1/ #dj
    kilomet]s f>!r f s* new place (
    employ;t ?an is ! taxpay]'s
    subsequ5t place or places ( resid;e2
    &
  7d7 ei
    --! taxpay] resumes ord9>y habit,n
      (! h\s+ unit dur+ ! t]m ( employ;t
      0t same employ] or 2f ! 5d (!
      tax,n ye> immly foll[+ ! tax,n ye>
      9 : s* employ;t t]m9ates2 or
    --! taxpay] dies dur+ ! t]m ( s*
      employ;t4
    

                                     #ed
             ,,it-#abj;,r#f         a#aj
  ,) reg>d 63di;n 7d71 two corpor,ns t
  >e memb]s (! same corporate gr\p1 or
  >e o!rwise relat$1 >e n 3sid]$ 6be !
  same employ]4

        ,-plete ,*ange 9 ,use (a
      ,prop]ty ,f ,9come-,produc+
          6,pr9cipal ,resid;e
    
#bh4 ,if a taxpay] has -pletely *ang$ !
  use (a prop]ty 7= : an elec;n "u
  subsec;n #de7#b7 is n 9 =ce7 f 9come-
  produc+ 6a pr9cipal resid;e1 he or %e
  is deem$ 0p>agraph #de7#a77a7 6h 4pos$
  (! prop]ty 7bo? l& & build+71 & immly
  "!af reacquir$ x1 at ,,fmv4 ,? deem$
  4posi;n c result 9 a taxa# capital
  ga94 ,! taxpay] may 9/1d def]
  recogni;n (! ga9 6a lat] ye> 0elect+
  "u subsec;n #de7#c7 t ! abv-m5;n$
  deem$ 4posi;n & reacquisi;n "u
  p>agraph #de7#a77a7 does n apply4 ,?
  elec;n is made 0m1ns (a lr 6t e6ect
  sign$ 0! taxpay] & fil$ )! 9come   #ee
             ,,it-#abj;,r#f         b#aj
  tax return =! ye> 9 : ! prop]ty is
  ultimately 4pos$ ( 7or e>li] if a =mal
  8dem&0 =! elec;n is issu$ 0! ,,ccra74
  ,al1 subsec;n #bbj7#c.b7 (! ,act1 9
  3junc;n ) sec;n #fjj (! ,9come ,tax
  ,regul,ns1 provides ! au?or;y =!
  ,,ccra 6a3ept a late-fil$ subsec;n
  #de7#c7 elec;n4 ,s* a late-fil$ elec;n
  may 2 a3ept$ "u c]ta9 circum/.es4 ,=
  fur!r "picul>s on ! a3ept.e ( late-
  fil$ elec;ns1 see ! curr5t v].n (
  ,9=m,n ,circul> #ib-a1 ,guidel9es =
  ,a3ept+ ,late1 ,am5d$ or ,revok$
  ,elec;ns4

  ,ev5 if a subsec;n #de7#c7 elec;n is
  fil$ 9 ord] 6def] recogni;n (a ga9 f !
  *ange 9 use (a prop]ty f 9come-produc+
  6pr9cipal resid;e1 ! net 9come f !
  prop]ty =! p]iod 2f ! *ange 9 use m/ /
  2 report$4 ,h["e1 = purposes ( report+
  s* net 9come1 x %d 2 not$ t an elec;n
  "u subsec;n #de7#c7 is n possi# if1 =
  any tax,n ye> 5d+ af #aihd & on    #ef
             ,,it-#abj;,r#f         c#aj
  or 2f ! *ange 9 use (! prop]ty f
  9come-produc+ 6a pr9cipal resid;e1
  ,,cca has be5 all[$ 9 respect (!
  prop]ty to
  --! taxpay]2
  --! taxpay]'s sp\se or -mon-law "pn]2
    or
  --a tru/ "u : ! taxpay] or 8 or h]
    sp\se or -mon-law "pn] is a
    b5efici>y4
  
  ,,cca s all[$ wd cause subsec;n
  #de7#d7 6nullify ! subsec;n #de7#c7
  elec;n4
#bi4 ,simil> 6! tr1t;t =a subsec;n
  #de7#b7 elec;n 7see p>agraph #bf71 a
  prop]ty c qualify z a taxpay]'s
  pr9cipal resid;e = up 6f\r tax,n ye>s
  prior 6a *ange 9 use cov]$ 0a subsec;n
  #de7#c7 elec;n1 9 lieu ( fulfill+ !
  8ord9>ily 9habit$0 rule 74cuss$ 9
  p>agraph #e7 = ^! ye>s4 ,z 9 ! case (a
  subsec;n #de7#b7 elec;n1 resid;e or
  deem$ resid;e 9 ,canada dur+ ^!    #eg
             ,,it-#abj;,r#f         d#aj
  ye>s is nec =! full b5efit (! pr9cipal
  resid;e exemp;n 6apply4 ,fur!rmore1 !
  rule describ$ 9 p>agraph #f prev5ts !
  design,n ( m ?an "o prop]ty z a
  pr9cipal resid;e = any "picul> ye> 0!
  taxpay] 7or1 = any "picul> ye> af !
  #aiha tax,n ye>1 0! taxpay] or any o!r
  memb] ( 8 or h] family unit74

,example
  ,mr4 ;,x b"\ a h\se 9 #aiic & r5t$ x
  6a ?ird "py until mid-#aiii4 ,mr4 ;,x
  & 8 family !n liv$ 9 ! h\se until x 0
  sold 9 #bjja4 ,mr4 ;,x has be5 resid5t
  9 ,canada at all "ts4 ,:5 he fil$ 8
  #bjja 9come tax return1 ,mr4 ;,x
  designat$ ! h\se z 8 pr9cipal resid;e
  =! #aiii 6#bjja tax,n ye>s 9clusive1
  0virtue ( 8 hav+ ord9>ily 9habit$ x
  dur+ ^? ye>s4 ,he al designat$ ! h\se
  z 8 pr9cipal resid;e =! #aiie 6#aiih
  ye>s 9clusive 7i4e41 ! maximum #d
  ye>s7 0virtue (a subsec;n #de7#c7
  elec;n1 : he fil$ ) 8 #bjja        #eh
             ,,it-#abj;,r#f         e#aj
  9come tax return 7he 0 a# 6make ?
  design,n 2c 7;i7 no o!r prop]ty _h be5
  designat$ 0hm or a memb] ( 8 family
  unit = ^? ye>s1 & 7;ii7 he did n claim
  any ,,cca :5 report+ ! net 9come f !
  prop]ty 2f ! *ange 9 use74 ,h["e1 8
  ga9 o!rwise det]m9$ on ! 4posi;n (!
  h\se 9 #bjja cd n 2 fully elim9at$ 0!
  pr9cipal resid;e exemp;n =mula 9
  p>agraph #h 2c he cd n designate !
  h\se z 8 pr9cipal resid;e =! #aiic &
  #aiid ye>s4

         ,"pial ,*anges 9 ,use
    
#cj4 ,if a taxpay] has "pi,y 3v]t$ a
  pr9cipal resid;e 6an 9come-produc+
  use1 p>agraph #de7#a77c7 provides =a
  deem$ 4posi;n (! por;n (! prop]ty s
  3v]t$ 7s* por;n is usu,y calculat$ on
  ! basis (! >ea 9volv$7 = proce$s equal
  6xs propor;nate %>e (! prop]ty's
  ,,fmv4 ,p>agraph #de7#a77c7 al
  provides =a deem$ reacquisi;n      #ei
             ,,it-#abj;,r#f         f#aj
  immly "!af (! same por;n (! prop]ty at
  a co/ equal 6! v same am.t4 ,any ga9
  o!rwise det]m9$ on ! deem$ 4posi;n is
  usu,y elim9at$ or reduc$ 0! pr9cipal
  resid;e exemp;n4 ,if ! por;n (!
  prop]ty s *ang$ is lat] 3v]t$ back
  6use z "p (! pr9cipal resid;e1 "! is a
  second deem$ 4posi;n 7& reacquisi;n7
  "!( at ,,fmv4 ,a taxa# capital ga9
  attributa# 6! p]iod ( use ( s* por;n
  (! prop]ty = 9come-produc+ purposes c
-------------------------------------#aa
  >ise f s* a second deem$ 4posi;n or f
  an actual sale (! :ole prop]ty
  subsequ5t 6! orig9al "pial *ange 9
  use4 ,an elec;n "u subsec;n #de7#b7 or
  7#c7 _c 2 made ": "! is a "pial *ange
  9 use (a prop]ty z describ$ abv4
#ca4 ,! abv-m5;n$ deem$ 4posi;n rule
  applies ": ! "pial *ange 9 use (!
  prop]ty is sub/antial &(a m p]man5t
  nature1 i4e41 ": "! is a /ructural
  *ange4 ,examples ": ? o3urs >e ! 3v].n
  (! front half (a h\se 96a /ore1    #fj
             ,,it-#abj;,r#f         a#aa
  ! 3v].n (a por;n (a h\se 96a self-
  3ta9$ dome/ic e/abli%;t = e>n+ r5tal
  9come 7a duplex1 triplex1 etc471 &
  alt],ns 6a h\se 6a3ommodate sep>ate
  busi;s premises4 ,9 ^! & simil> cases1
  ! taxpay] reports ! 9come & may claim
  ! exp5ses p]ta9+ 6! alt]$ por;n (!
  prop]ty 7i4e41 a r1sona# por;n (!
  exp5ses relat+ 6! :ole prop]ty7 z well
  z ,,cca on s* alt]$ por;n (! prop]ty4
#cb4 ,x is \r practice n 6apply ! deem$
  4posi;n rule1 b r 63sid] t ! 5tire
  prop]ty reta9s xs nature z a pr9cipal
  resid;e1 ": all (! foll[+ 3di;ns >e
  met3
  7a7 ! 9come-produc+ use is ancill>y 6!
    ma9 use (! prop]ty z a resid;e1
  7b7 "! is no /ructural *ange 6!
    prop]ty1 &
  7c7 no ,,cca is claim$ on ! prop]ty4
  
  ,^! 3di;ns c 2 met1 = example1 ": a
  taxpay] c>ries on a busi;s ( c>+ = *n
  9 8 or h] home1 r5ts "o or m       #fa
             ,,it-#abj;,r#f         b#aa
  rooms 9 ! home1 or has an (fice or o!r
  "w space 9 ! home : is us$ 9 3nec;n )
  8 or h] busi;s or employ;t4 ,9 ^! &
  simil> cases1 ! taxpay] reports !
  9come & may claim ! exp5ses 7o!r ?an
  ,,cca7 p]ta9+ 6! por;n (! prop]ty us$
  = 9come-produc+ purposes4 ,c]ta9
  3di;ns & re/ric;ns >e plac$ on !
  deductibil;y ( exp5ses relat+ 6an
  (fice or o!r "w space 9 an 9dividual's
  home--see ! curr5t v].n ( ,,it-#ead1
  ,"w ,space 9 ,home ,exp5ses 7if !
  9come is 9come f a busi;s7 or ! curr5t
  v].n ( ,,it-#ceb1 ,employee's
  ,exp5ses1 ,9clud+ ,"w ,space 9 ,home
  ,exp5ses4 ,9 ! ev5t t ! taxpay] -m;es
  6claim ,,cca on ! por;n (! prop]ty us$
  = produc+ 9come1 ! deem$ 4posi;n rule
  is appli$ z (! "t at : ! 9come-produc+
  use -m;ed4



                                     #fb
          ,*ange 9 ,use ,rules      c#aa
     ,reg>d+ ,,cca1 ,deem$ ,capital
           ,co/1 & ,recapture
    
#cc4 ,if a taxpay] has -pletely or "pi,y
  *ang$ ! use ( prop]ty f pr9cipal
  resid;e 69come-produc+1 subsec;n
  #ac7#g7 provides =a deem$ acquisi;n (!
  prop]ty or por;n (! prop]ty s *ang$ t
  is deprecia# prop]ty4 ,= purposes (
  claim+ ,,cca1 ! deem$ capital co/ ( s*
  deprecia# prop]ty is xs ,,fmv z (!
  date (! *ange 9 use un.s t ,,fmv is
  grt] ?an xs co/ 6! taxpay]4 ,9 t case1
  ! deem$ capital co/ ( s* deprecia#
  prop]ty is equal 6xs co/ 6! taxpay]
  plus an am.t : repres5ts ! taxa# por;n
  (! a3ru$ ga9 on ! prop]ty 72f any
  reduc;n 6t ga9 0m1ns (! pr9cipal
  resid;e exemp;n7 6! ext5t t a sec;n
  #aaj.f capital ga9s deduc;n has n be5
  claim$ 9 respect ( t am.t 7? latt]
  rule has no "picul> signific.e =
  4posi;ns ( resid;e prop]ties o3urr+ af
  ,febru>y #bb1 #aiid1 2c (!         #fc
             ,,it-#abj;,r#f         d#aa
  elim9,n (! 4#ajj1jjj life"t capital
  ga9s exemp;n = 4posi;ns af t date74

,example
  ,mr4 ;,a -pletely 3v]t$ 8 h\se 6a
  r5tal prop]ty 9 ,janu>y #bjja1 at : "t
  xs co/ 6hm & xs ,,fmv 7 4#fj1jjj &
  4#ajj1jjj respectively 7bo? am.ts
  p]ta9 only 6! h\s+ unit & n ! l&74 ,!
  *ange 9 use result$ 9 a deem$ 4posi;n
  (! prop]ty at ,,fmv 7see p>agraphs #be
  & #bf--assume t ;,mr4 ;,a did n make a
  subsec;n #de7#b7 elec;n 9 respect (!
  prop]ty 2c he want$ 6use ! pr9cipal
  resid;e exemp;n = 8 cottage =! ye>s af
  #bjja74 ,mr4 ;,a 0 a# 6use ! pr9cipal
  resid;e exemp;n =mula 9 p>agraph #h
  6br+ 8 ga9 on ! ,janu>y #bjja deem$
  4posi;n (! h\se 6nil4 ,mr4 ;,a's deem$
  capital co/ =! h\se 7i4e41 = ,,cca
  purposes7 at ! "t ( xs *ange 9 use 6a
  r5tal prop]ty 0 4#hj1jjj4 ,? am.t 0
  calculat$ 0tak+ ! 4#fj1jjj co/ & a4+
  4#bj1jjj1 ! latt] am.t 2+ "o-      #fd
             ,,it-#abj;,r#f         e#aa
  half (! excess (! 4#ajj1jjj ,,fmv ov]
  ! 4#fj1jjj co/4 7,note t ! 4#bj1jjj
  pot5ti,y taxa# por;n (! ga9 0 9clud$ 9
  ,mr4 ;,a's deem$ capital co/ = ,,cca
  purposes ev5 ?\< he elim9at$ ! ga9
  0m1ns (! pr9cipal resid;e exemp;n47

  ,9 ! case (a -plete *ange 9 use (a
  prop]ty f pr9cipal resid;e 69come-
  produc+1 a subsec;n #de7#b7 elec;n w
  cause subsec;n #ac7#g71 z describ$
  abv1 n 6apply4 ,h["e1 if ! elec;n is
  resc9d$ 9 a subsequ5t tax,n ye> 7e4g41
  0claim+ ,,cca on ! prop]ty--see
  p>agraph #be71 a subsec;n #ac7#g7
  deem$ acquisi;n ( deprecia# prop]ty w
  o3ur on ! f/ "d ( t subsequ5t ye>4

  ,2c a subsec;n #de7#b7 elec;n is n
  availa# ": "! is only a "pial *ange 9
  use (a prop]ty f pr9cipal resid;e
  69come-produc+1 subsec;n #ac7#g7
  applies 9 s* a situ,n 9 ! mann]
  describ$ abv 7except ": 3di;ns     #fe
             ,,it-#abj;,r#f         f#aa
  7a7 to 7c7 9 p>agraph #cb h be5 met1
  9clud+ ! 3di;n n 6claim ,,cca on !
  por;n (! prop]ty us$ 6e>n 9come74
#cd4 ,if a taxpay] -pletely or "pi,y
  *anges ! use (a prop]ty f 9come-
  produc+ 6pr9cipal resid;e1 "! is a
  deem$ 4posi;n at ,,fmv1 0virtue (
  subsec;n #ac7#g71 (! por;n (! prop]ty
  s *ang$ t is deprecia# prop]ty4 ,? c
  result 9 a recapture ( ,,cca previ\sly
  claim$ on ! prop]ty4 ,a subsec;n
  #de7#c7 elec;n _c 2 us$ 6def] s* a
  recapture 7e4g41 a
-------------------------------------#ab
  recapture ( ,,cca claim$ =a tax,n ye>
  5d+ 2f #aihe--see ! -;ts reg>d+ ,,cca
  9 p>agraph #bh74

            ,p]sonal ,tru/s
    
#ce4 ,x is possi# =a 8p]sonal tru/0 7?
  t]m is def9$ 9 subsec;n #bdh7#a7 (!
  ,act7 6claim ! pr9cipal resid;e
  exemp;n 6reduce or elim9ate a      #ff
             ,,it-#abj;,r#f         a#ab
  ga9 t ! tru/ wd o!rwise h on ! 4posi;n
  (a prop]ty4 ,= ? purpose1 ! normal
  pr9cipal resid;e exemp;n rules g5],y
  apply1 subject 6! foll[+ modific,ns3
  7a7 ,:5 a p]sonal tru/ designates a
    prop]ty z xs pr9cipal resid;e = "o
    or m tax,n ye>s1 ! tru/ee (! tru/ %d
    -plete & file ,=m ,t#ajgi1 ,design,n
    (a ,prop]ty z a ,pr9cipal ,resid;e
    0a ,p]sonal ,tru/4 ,= purposes (
    calculat+ a capital ga9s elec;n
    reduc;n am.t 7see p>agraph #h7 =!
    tru/1 ! tru/ee %d -plete ,=m
    ,t#ajgi-;,,ws1 ,pr9cipal ,resid;e
    ,"w%eet1 & file x )! ,t#ajgi
    design,n =m4
  7b7 ,= ea* tax,n ye> = : ! tru/ is
    designat+ ! prop]ty z xs pr9cipal
    resid;e1 ! tru/ m/ specify 9 ! abv-
    m5;n$ design,n ea* 9dividual :o1 9 !
    cal5d> ye> 5d+ 9 t tax,n ye>1
    --was b5efici,y 9t]e/$ 9 ! tru/1 &
    --ord9>ily 9habit$ ! h\s+ unit or :o
      _h a sp\se or -mon-law "pn]1   #fg
             ,,it-#abj;,r#f         b#ab
      =m] sp\se or -mon-law "pn]1 or *
      :o ord9>ily 9habit$ ! h\s+ unit 7a
      subsec;n #de7#b7 or 7#c7 elec;n c
      2 us$1 h["e1 9 ess5ti,y ! same
      mann] z1 & subject 6! limit,ns
      4cuss$ in1 p>agraphs #bf & #bi1
      6remove ! require;t t ! 8ord9>ily
      9habit$0 rule 2 fulfill$ =! ye>
      0"o ( ^! p]sons74
    
  ,any 9dividual specifi$ 0! tru/ 6be an
  9dividual z describ$ abv is ref]r$ 6z
  a 8specifi$ b5efici>y0 (! tru/ =! ye>4
  7c7 ,= ea* tax,n ye> = : ! tru/ is
    designat+ ! prop]ty z xs pr9cipal
    resid;e1 "! m/ n h be5 any corpor,n
    7o!r ?an a regi/]$ *>;y7 or "pn]%ip
    t 0 b5efici,y 9t]e/$ 9 ! tru/ at any
    "t 9 ! ye>4
  7d7 ,= ea* tax,n ye> = : ! tru/ is
    designat+ ! prop]ty z xs pr9cipal
    resid;e 79clud+ ye>s 2f #aihb71 no
    o!r prop]ty may h be5 designat$ z a
    pr9cipal resid;e1 =! cal5d>      #fh
             ,,it-#abj;,r#f         c#ab
    ye> 5d+ 9 ! ye>1 0any specifi$
    b5efici>y (! tru/ =! ye>1 or 0any
    p]son :o "?\t ! cal5d> ye> 5d+ 9 !
    ye> 0 a memb] ( s* a b5efici>y's
    family unit4 ,= ? purpose1 a
    specifi$ b5efici>y's 8family unit0
    9cludes1 9 a4i;n 6! specifi$
    b5efici>y1 ! foll[+ p]sons 7if any73
    --! specifi$ b5efici>y's sp\se or
      -mon-law "pn] "?\t ! cal5d> ye>
      5d+ 9 ! ye>1 un.s ! sp\se or -mon-
      law "pn] 0 "?\t t cal5d> ye> liv+
      a"p1 & 0 sep>at$ pursuant 6a
      judicial sep>,n or writt5 sep>,n
      agree;t1 f ! specifi$ b5efici>y2
    --! specifi$ b5efici>y's *n1 except
      ^? :o 7 m>ri$1 9 a -mon-law
      "pn]%ip or #ah ye>s ( age or old]
      dur+ ! cal5d> ye> 5d+ 9 ! ye>2 &
    --": ! specifi$ b5efici>y 0 n m>ri$1
      9 a -mon-law "pn]%ip or #ah ye>s (
      age or old] dur+ ! cal5d> ye> 5d+
      9 ! ye>1
                                     #fi
             ,,it-#abj;,r#f         d#ab
      --! specifi$ b5efici>y's "m & "f1
        &
      --! specifi$ b5efici>y's bro!rs &
        si/]s :o 7 n m>ri$1 9 a -mon-law
        "pn]%ip or #ah ye>s ( age or
        old] dur+ t cal5d> ye>4
  ,fur!rmore1 if a p]sonal tru/
  designates a prop]ty z xs pr9cipal
  resid;e =a "picul> tax,n ye>1 !
  prop]ty is deem$ 6be prop]ty
  designat$1 =! cal5d> ye> 5d+ 9 ! ye>1
  z ! pr9cipal resid;e ( ea* specifi$
  b5efici>y (! tru/4 ,? deem+ rule c 2
  appli$1 9 3junc;n )! o!r pr9cipal
  resid;e exemp;n rules1 6v>i\s situ,ns
  n explicitly describ$ 9 ^? rules4

,example
  ,p]sonal ,tru/ ;,a [n$ a h\se 9 xs
  tax,n ye> 5d$ ,decemb] #ca1 #bjja4 ,!
  h\se 0 ord9>ily 9habit$ 9 #bjja 0,mr4
  ;,x1 a specifi$ b5efici>y ( ,p]sonal
  ,tru/ ;,a 7& al 0his sp\se1 ,mrs4
  ;,x74 ,! tru/ has designat$ !      #gj
             ,,it-#abj;,r#f         e#ab
  h\se z xs pr9cipal resid;e = xs tax,n
  ye> 5d$ ,decemb] #ca1 #bjja4 ,! h\se
  is "!=e deem$ 6h be5 designat$ z ,mr4
  ;,x's pr9cipal resid;e = #bjja4

  ,p]sonal ,tru/ ;,b [n$ a cottage 7see
  p>agraph #c7 9 xs tax,n ye> 5d$
  ,decemb] #ca1 #bjja4 ,! cottage 0
  ord9>ily 9habit$ 7see p>agraph #e7 9
  #bjja 0,mrs4 ;,x1 a specifi$ b5efici>y
  ( ,p]sonal ,tru/ ;,b 7& al 0,mr4 ;,x74
  ,z 4cuss$ 9 p>agraph #f1 a taxpay] & 8
  or h] sp\se or -mon-law "pn] _c
  designate di6]5t prop]ties =! same
  ye>4 ,"!=e1 s9ce ! h\se has alr be5
  deem$ 6h be5 designat$ z ,mr4 ;,x's
  pr9cipal resid;e = #bjja1 ,p]sonal
  ,tru/ ;,b _c designate ! cottage z xs
  pr9cipal resid;e = #bjja 2c t wd h
  result$ 9 ! cottage 2+ deem$ 6h al be5
  designat$ z ,mrs4 ;,x's pr9cipal
  resid;e = #bjja4

                                     #ga
             ,,it-#abj;,r#f         f#ab
#cf4 ,": a b5efici>y has acquir$ a
  prop]ty f a p]sonal tru/ 9 satisfac;n
  ( all or any "p (! b5efici>y's capital
  9t]e/ 9 ! tru/ &
  --! rollov] provi.n 9 subsec;n
    #ajg7#b7 appli$ 7see 4cus.n 9
    p>agraph #cg = an excep;n 6? rollov]
    provi.n7 &
-------------------------------------#ac
  --subsec;n #ajg7#d7 did n apply1
  
  subsec;n #dj7#g7 provides a deem+ rule
  :5 ! b5efici>y 4poses (! prop]ty4 ,=
  purposes ( claim+ ! pr9cipal resid;e
  exemp;n1 ! b5efici>y is deem$
  0subsec;n #dj7#g7 6h [n$ ! prop]ty
  s9ce ! tru/ la/ acquir$ x4

  ,! foll[+ example illu/rates ! e6ect (
  ? deem$ [n]%ip provi.n 9 subsec;n
  #dj7#g7 7in 3junc;n ) subsec;n
  #ajg7#b774

                                     #gb
             ,,it-#abj;,r#f         a#ac
,example
  ,a p]sonal tru/ acquir$ a resid5tial
  prop]ty on ,octob] #a1 #aiig =
  4#ge1jjj4 ,on ,janu>y #aj1 #aiii1 !
  prop]ty 0 4tribut$ 6,mr4 ;,x 9
  satisfac;n ( 8 capital 9t]e/ 9 ! tru/4
  ,subsec;n #ajg7#d7 did n apply )
  respect 6? 4tribu;n1 &! rollov]
  provi.n 9 subsec;n #ajg7#b7 prev5t$ !
  ga9 on ! prop]ty a3ru$ 6,janu>y #aj1
  #aiii f 2+ tax$ 9 ! h&s (! tru/4
  ,9/1d1 ! pot5tial = tax+ t ga9 0
  transf]r$ 6,mr4 ;,x 2c subsec;n
  #ajg7#b7 deem$ hm 6h acquir$ ! prop]ty
  at a co/ equal 64#ge1jjj1 i4e41 ! co/
  am.t (! prop]ty 6! tru/4 ,mr4 ;,x liv$
  9 ! resid;e f ,octob] #ae1 #aiig until
  he 4pos$ (! prop]ty on ,decemb] #a1
  #bjja = 4#abe1jjj1 9curr+ no co/s 9
  3nec;n )! 4posi;n4 ,mr4 ;,x's ga9
  o!rwise det]m9$ on ! 4posi;n (!
  prop]ty 0 equal 6his 4#abe1jjj proce$s
  m9us 8 4#ge1jjj adju/$ co/ base equals
  4#ej1jjj4 ,subsec;n #dj7#g7        #gc
             ,,it-#abj;,r#f         b#ac
  deem$ hm 6h [n$ ! prop]ty f ,octob]
  #a1 #aiig r ?an f ,janu>y #aj1 #aiii4
  ,s9ce ,mr4 ;,x ord9>ily 9habit$ !
  resid;e 9 all (! ye>s f #aiig 6#bjja
  9clusive 7i4e41 all (! ye>s 9 : he ei
  [n$ ! prop]ty or 0 deem$ 6h [n$ x71 he
  0 a# 6designate ! prop]ty z 8 pr9cipal
  resid;e = all ^? ye>s4 ,?us1 he 0 a#
  6use ! pr9cipal resid;e exemp;n =mula
  9 p>agraph #h 6fully elim9ate 8
  4#ej1jjj ga9 o!rwise det]m9$4 ,h["e1
  if nei ,mr4 ;,x nor 8 curr5t or =m]
  sp\se or -mon-law "pn]1 or * _h
  ord9>ily 9habit$ ! resid;e 7see ! rule
  4cuss$ 9 p>agraph #e7 until x 0
  4tribut$ 0! tru/ 6,mr4 ;,x on ,janu>y
  #aj1 #aiii1 he wd h be5 a# 6designate
  ! prop]ty z 8 pr9cipal resid;e only =
  #aiii 6#bjja4 ,9 o!r ^ws1 he wd h be5
  a# 6use ! =mula 9 p>agraph #h
  6elim9ate only ! foll[+ por;n ( 8
  4#ej1jjj ga9 o!rwise det]m9$3

                                     #gd
             ,,it-#abj;,r#f         c#ac
  ;,a multipli$ 0;,b divid$ 0;,c equals
  4#ej1jjj multipli$ 0#a plus #c 7#aiii
  6#bjja7 divid$ 0#e 7#aiig 6#bjja7
  equals 4#dj1jjj

#cg4 ,9 ord] 6prev5t ! rollov] rule 9
  subsec;n #ajg7#b7 f apply+ ) respect
  6a tru/'s 4tribu;n1 6a b5efici>y1 (a
  prop]ty t qualifies = design,n z !
  tru/'s pr9cipal resid;e 2f ! 4tribu;n1
  a p]sonal tru/ c use an elec;n "u
  subsec;n #ajg7#b.ja7 (! ,act4 ,"u ?
  elec;n1 ! tru/ wd 9/1d 2 deem$1 j 2f !
  4tribu;n (! prop]ty 6! b5efici>y1 6h
  4pos$ (& !n 6h reacquir$ ! prop]ty at
  fair m>ket value4 ,? cd 2 d"o1 =
  example1 9 ord] =! tru/ 6use !
  pr9cipal resid;e exemp;n 6elim9ate or
  reduce any ga9 on ! prop]ty a3ru$ 6t
  po9t 9 "t 7see p>agraph #ce71 id1l 9
  circum/.es ": ! recipi5t b5efici>y is
  n ! specifi$ b5efici>y & has [n$ ano!r
  home dur+ ! p]iod 9 : ! tru/ [n$ !
  home 2+ 4tribut$4 ,! co/ (!        #ge
             ,,it-#abj;,r#f         d#ac
  prop]ty 6! b5efici>y wd 2 t same fair
  m>ket value1 &! b5efici>y wd n 2 deem$
  0subsec;n #dj7#g7 7see p>agraph #cf7
  6h [n$ ! prop]ty dur+ ! p]iod ( "t 9 :
  x 0 [n$ 0! tru/ prior 6! 4tribu;n4

     ,transf] (a ,pr9cipal ,resid;e
    
#ch4 ,subsec;n #dj7#d7 c apply if a
  prop]ty (a taxpay] 7"h9af ref]r$ 6z !
  8transf]or07
  --has be5 transf]r$ 9t] vivos to3
    --! transf]or's sp\se or -mon-law
      "pn]1
    --! transf]or's =m] sp\se or -mon-
      law "pn]1
    --a sp\sal or -mon-law "pn] tru/1
    --a jo9t sp\sal or -mon-law "pn]
      tru/ or
    --an alt] ego tru/
  &! subsec;n #gc7#a7 rollov] rule has
  appli$2 or
  --has be5 transf]r$ or 4tribut$1 z a
    3sequ;e (! transf]or's d1?1      #gf
             ,,it-#abj;,r#f         e#ac
    6his or h] sp\se or -mon-law "pn] or
    6a sp\sal or -mon-law "pn] tru/1 &!
    subsec;n #gj7#f7 rollov] rule has
    appli$4
  
  ,if ! sp\se or -mon-law "pn]1 =m]
  sp\se or -mon-law "pn]1 sp\sal or
  -mon-law "pn] tru/1 jo9t sp\sal or
  -mon-law "pn] tru/1 or alt] ego tru/
  7"h9af ref]r$ 6z ! 8transf]ee07
  subsequ5tly 4poses (! prop]ty1
  subsec;n #dj7#d7 c apply ) respect 6a
  pr9cipal resid;e exemp;n1 claim$ 0!
  transf]ee1 =! prop]ty4 ,= purposes (!
  transf]ee's claim+ ! pr9cipal resid;e
  exemp;n "u ei p>agraph #dj7#b77b7 7see
  ! =mula 9 p>agraph #h7 or p>agraph
  #dj7#b77c7 7see p>agraphs #bj 6#bc71 !
  foll[+ rules apply "u subsec;n
  #dj7#d73
  7a7 ,! transf]ee is deem$ 6h [n$ !
    prop]ty "?\t ! p]iod t ! transf]or
    [n$ x4
                                     #gg
             ,,it-#abj;,r#f         f#ac
  7b7 ,! prop]ty is deem$ 6h be5 !
    transf]ee's pr9cipal resid;e
    --in a case ": ! subsec;n #gc7#a7
      rollov] rule appli$--= any tax,n
      ye> = : x 0 ! transf]or's pr9cipal
      resid;e2 &
    --in a case ": ! subsec;n #gj7#f7
      rollov] rule appli$--= any tax,n
      ye> = : x wd h be5 ! transf]or's
      pr9cipal resid;e if he or %e _h s
      designat$ x4
-------------------------------------#ad
  7c7 ,if ! transf]ee is a tru/1 x is
    deem$ 6h be5 resid5t 9 ,canada dur+
    ea* (! tax,n ye>s dur+ : ! transf]or
    0 resid5t 9 ,canada4
  ,any ye> 9clud$ 9 ! p]iod describ$ 9
  7a7 is 9clud$ 0! transf]ee 9 v>ia# ;,c
  7! denom9ator (! frac;n7 9 ! =mula 9
  p>agraph #h4 ,any ye> describ$ 9 7b7
  is 9clud$ 0! transf]ee 9 v>ia# ;,b 7!
  num]ator (! frac;n7 9 ! =mula 9
  p>agraph #h or 9 ! ye>s 9clud$ 9 !
  /ate;t 9 p>agraph #bb7b71 z !      #gh
             ,,it-#abj;,r#f         a#ad
  case may be1 assum+ t ! transf]ee
  meets ! resid;e require;t m5;n$ "!91 z
  ! case may be1 = t ye>4 7,if !
  transf]ee is a tru/1 see 7c7 abv )
  reg>d 6? resid;e require;t47

,example #a
  ,mr4 ;,x 0 ! sole [n] (a h\se 9
  ,canada1 : he _h acquir$ 9 #aihe4 ,9
  #aiij1 ,mr4 ;,x got m>ri$ & 8 sp\se1
  ,mrs4 ;,x1 mov$ 96! h\se ) hm4 ,9
  #aiie1 ,mr4 ;,x di$ &! h\se 0
  transf]r$ 6a sp\sal tru/ = ,mrs4 ;,x4
  ,! tru/ 0 a tru/ z describ$ 9 subsec;n
  #gj7#f74 ,! tru/'s tax,n ye>-5d 0
  ,decemb] #ca4 ,if ,mr4 ;,x _h n di$ 7&
  if he _h sold 8 h\se 9 #aiie71 he cd h
  designat$ x z 8 pr9cipal resid;e = any
  (! ye>s #aihe 6#aiie 9clusive4

  ,"u ! rollov] rule 9 subsec;n #gj7#f71
  ,mr4 ;,x 0 deem$ 6h 4pos$ (! h\se
  immly 2f 8 d1? = proce$s equal 6his
  co/ (! h\se4 ,?us1 ,mr4 ;,x _h     #gi
             ,,it-#abj;,r#f         b#ad
  no ga9 or loss on ! deem$ 4posi;n (!
  h\se4 ,! sp\sal tru/ = ,mrs4 ;,x 0
  deem$ "u subsec;n #gj7#f7 6h acquir$ !
  h\se1 at ! "t ( ,mr4 ;,x's d1?1 at a
  co/ equal 6,mr4 ;,x's deem$ proce$s1
  i4e41 at ,mr4 ;,x's co/ (! h\se4

  ,9 #bjja1 ,mrs4 ;,x di$ &! tru/ sold !
  h\se at fair m>ket value4 ,s9ce ? am.t
  0 grt] ?an ! tru/'s deem$ co/ (! h\se1
  ! tru/ _h a 8ga9 o!rwise det]m9$0 f !
  4posi;n1 : ! tru/ 7i4e41 xs tru/ee7
  wi%es 6elim9ate 0us+ ! pr9cipal
  resid;e exemp;n4

  ,subsec;n #dj7#d7 deems ! tru/ 6h [n$
  ! h\se 9 all ! ye>s 9 : ,mr4 ;,x [n$
  x1 i4e41 #aihe 6#aiie 9clusive1 9
  a3ord.e )! rule describ$ 9 7a7 abv4
  7,! h\se was1 ( c\rse1 [n$ 0! tru/ 9
  #aiie 9 any ev5t47 ,? m1ns t ! ye>s t
  ! tru/ m/ 9clude 9 v>ia# ;,c 7!
  denom9ator (! frac;n7 9 ! pr9cipal
                                     #hj
             ,,it-#abj;,r#f         c#ad
  resid;e exemp;n =mula 9 p>agraph #h >e
  #aihe 6#bjja 9clusive4

  ,s9ce ! tru/ is a p]sonal tru/ resid5t
  9 ,canada & al s9ce ,mrs4 ;,x liv$ 9 !
  h\se & qualifi$ z a specifi$ b5efici>y
  (! tru/ =! ye>s #aiie 6#bjja 9clusive
  7see p>agraph #ce71 ! tru/ c designate
  ! h\se z xs pr9cipal resid;e = ^?
  ye>s4 ,! tru/ _c designate ! h\se z xs
  pr9cipal resid;e =! ye>s #aihe 6#aiid
  9clusive2 h["e1 s* a design,n 0! tru/
  is n nec--! h\se is alr deem$
  0subsec;n #dj7#d7 6h be5 ! tru/'s
  pr9cipal resid;e = ^? ye>s1 9 a3ord.e
  )! rule describ$ 9 7b7 abv1 2c ,mr4
  ;,x cd h designat$ ! h\se z 8 pr9cipal
  resid;e = ^? ye>s4 ,al1 9 a3ord.e )!
  rule describ$ 9 7c7 abv1 ! tru/ is
  deem$ 6h be5 resid5t 9 ,canada =! ye>s
  #aihe 6#aiid 2c ,mr4 ;,x 0 resid5t 9
  ,canada dur+ ^? ye>s4 ,"!=e1 ! tru/ is
  a# 69clude all (! ye>s f #aihe 6#bjja
  9clusive 9 v>ia# ;,b 7! num]ator   #ha
             ,,it-#abj;,r#f         d#ad
  (! frac;n7 9 ! =mula 9 p>agraph #h4 ,9
  o!r ^ws1 ! tru/ is a# 6use ! pr9cipal
  resid;e exemp;n =mula 9 p>agraph #h
  6-pletely elim9ate ! ga9 o!rwise
  det]m9$ on xs 4posi;n (! h\se 9 #bjja4

,example #b
  ,assume all ! same facts z 9 ,example
  #a1 except ! foll[+3 ,mr4 ;,x cd n h
  designat$ ! h\se z 8 pr9cipal resid;e
  =! ye>s #aihe 6#aihh 9clusive 2c he _h
  alr designat$ 8 cottage 7see p>agraphs
  #c & #e7 z 8 pr9cipal resid;e = ^?
  ye>s 7see ! design,n rules 4cuss$ 9
  p>agraph #f74 ,"u ^! circum/.es1 !
  h\se t 0 transf]r$ 6! sp\sal tru/ =
  ,mrs4 ;,x _c 2 deem$ 6h be5 ! pr9cipal
  resid;e (! tru/ =! ye>s #aihe 6#aihh
  9clusive4 ,"!=e1 ! tru/ c only "pi,y
  elim9ate ! ga9 o!rwise det]m9$ on xs
  4posi;n (! h\se 9 #bjja 0m1ns (!
  pr9cipal resid;e exemp;n =mula 9
  p>agraph #h4
                                     #hb
             ,,it-#abj;,r#f         e#ad
  ,9 ! case ( an 9t] vivos transf] (
  prop]ty "u subsec;n #gc7#a7 (! ,act1 !
  foll[+ %d 2 not$ = purposes ( any
  subsequ5t 4posi;n (! prop]ty 0!
  transf]ee3
  --,a design,n (! prop]ty z ! pr9cipal
    resid;e (! transf]or--= "o or m ye>s
    prior 6! transf]--may 2 ne$$ 9 ord]
    =! prop]ty 6be deem$ 6h be5 !
    pr9cipal resid;e (! transf]ee = ^?
    ye>s 0m1ns ( subsec;n #dj7#d7 7see
    7b7 abv74 ,note t ! transf]or w n 2
    a# 6designate ! prop]ty z a pr9cipal
    resid;e = any "picul> ye> if ano!r
    prop]ty is designat$ z a pr9cipal
    resid;e = t ye> 0! transf]or 7or1 if
    ! ye> is af ! #aiha tax,n ye>1 0!
    transf]or or any (! o!r memb]s (!
    transf]or's family unit7--see
    p>agraph #f4 ,if ! transf]or is a#
    to1 & does 9 fact1 designate !
    prop]ty z 8 or h] pr9cipal resid;e =
    "o or m ye>s prior 6! transf]1 ?
    does n necess>ily m1n t !        #hc
             ,,it-#abj;,r#f         f#ad
    transf]or m/ actu,y file ! design,n
    =m )! return =! ye> (! transf] 7al?
    ! transf]or may d s7--= fur!r -;ts
    on ! necess;y 6file a design,n =m1
    see p>agraph #g4 ,! transf]or %d1 9
    any ev5t1 -plete ! design,n =m &1 if
    x is n fil$ 0! transf]or1 ..x %d 2
    reta9$ 0! .transf]ee4 ,subsequ5tly1
    if ! transf]ee 4poses (! prop]ty 7or
    grants an op;n 6ano!r p]son 6acquire
    ! prop]ty7 & wi%es 6use ! pr9cipal
    resid;e exemp;n1 ! transf]ee wd ne$
    6file ! design,n =ms--i4e41 !
    transf]ee's design,n =m = any ye>s =
    : ! transf]ee is designat+ ! prop]ty
    z a pr9cipal resid;e &! transf]or's
    design,n =m = any
-------------------------------------#ae
    ye>s = : 8 or h] design,n (! prop]ty
    causes ! prop]ty 6be deem$ 6h be5 !
    pr9cipal resid;e (! transf]ee
    --if ! transf]ee is ! transf]or's
      sp\se or -mon-law "pn]--only :5 !
      situ,n describ$ 9 p>agraph     #hd
             ,,it-#abj;,r#f         a#ae
      #g7a7 or 7b7 exi/s 9 3nec;n )!
      transf]ee's 4posi;n (! prop]ty2 or
    --if ! transf]ee is a p]sonal tru/-
      in e case 7see p>agraph #ce7a774
  --,any taxa# capital ga9 (! transf]ee
    7exclud+ an alt] ego tru/7 f !
    4posi;n (! prop]ty or sub/itut$
    prop]ty 7: mi<t o3ur1 = example1 2c
    ! transf]ee 0 n a# 6-pletely
    elim9ate ! ga9 o!rwise det]m9$ 0m1ns
    (! pr9cipal resid;e exemp;n7 cd 2
    deem$ 6be ! taxa# capital ga9 (!
    transf]or 0virtue (! attribu;n rules
    9 sec;n #gd.b (! ,act4 ,=a 4cus.n (
    ^! rules1 see ! curr5t v].n (
    ,,it-#eaa1 ,9t]sp\sal & ,c]ta9 ,o!r
    ,transf]s & ,loans ( ,prop]ty4
  
           ,"pn]%ip ,prop]ty
    
#ci4 ,al? a h\s+ unit1 a l1sehold 9t]e/
  "!91 or a %>e (! capital /ock (a co-
  op]ative h\s+ corpor,n 7see p>agraph
  #c7 c 2 a "pn]%ip asset1 a         #he
             ,,it-#abj;,r#f         b#ae
  "pn]%ip is n a taxpay] & x _c use !
  pr9cipal resid;e exemp;n on ! 4posi;n
  ( any s* prop]ty4 ,h["e1 a memb] (!
  "pn]%ip cd use ! pr9cipal resid;e
  exemp;n 6reduce or elim9ate ! por;n (
  any ga9 on ! 4posi;n (! prop]ty : is
  allocat$ 6t "pn] pursuant 6! "pn]%ip
  agree;t1 provid$ t ! o!r require;ts (!
  sec;n #ed def9i;n ( 8pr9cipal resid;e0
  >e met 7e4g41 if ! "pn] resides 9 !
  "pn]%ip's h\s+ unit1 ? wd satisfy !
  8ord9>ily 9habit$0 require;t 4cuss$ 9
  p>agraph #e74

     ,a ,pr9cipal ,resid;e ,\tside
                ,canada
    
#dj4 ,a prop]ty t is locat$ \tside
  ,canada c1 dep5d+ on ! facts (! case1
  qualify z a taxpay]'s pr9cipal resid;e
  7see ! require;ts 4cuss$ 9 p>agraphs
  #b 6#f74 ,a taxpay] t is resid5t 9
  ,canada & [ns s* a qualify+ prop]ty
  \tside ,canada dur+ a "picul>      #hf
             ,,it-#abj;,r#f         c#ae
  tax,n ye> c designate ! prop]ty z a
  pr9cipal resid;e = t ye> 9 ord] 6use !
  pr9cipal resid;e exemp;n 7see p>agraph
  #h =! m1n+s ( 8resid5t 9 ,canada0 &
  8dur+074 ,%d a non-resid5t ( ,canada
  :o [ns a prop]ty \tside ,canada 2come
  a resid5t ( ,canada at any "picul> "t1
  ! provi.ns (! ,act norm,y apply 6deem
  t p]son 6acquire ! prop]ty at t "t at
  fair m>ket value1 "!by 5sur+ t any
  unr1liz$ ga9 on ! prop]ty a3ru+ 6t "t
  w n 2 taxa# 9 ,canada4 ,"!af1 ! -;ts 9
  ! f/ two s5t;es ( ? p>agraph may
  apply4

         ,non-,resid5t ,[n] (a
      ,pr9cipal ,resid;e 9 ,canada
    
#da4 ,x may 2 possi# =a prop]ty 9
  ,canada t is [n$ 9 a "picul> tax,n ye>
  0a non-resid5t ( ,canada 6qualify z !
  non-resid5t's pr9cipal resid;e 7i4e41
  satisfy all ! require;ts (! sec;n #ed
  def9i;n ( 8pr9cipal resid;e0 =!    #hg
             ,,it-#abj;,r#f         d#ae
  non-resid5t7 = t ye>4 ,! non-resid5t's
  sp\se cd 2 ! "o1 = example1 :o
  satisfies ! 8ord9>ily 9habit$0 rule--
  see p>agraph #e 7or1 alt]natively1 a
  subsec;n #de7#b7 or 7#c7 elec;n cd
  make ! design,n (! prop]ty z ! non-
  resid5t's pr9cipal resid;e possi#--see
  p>agraphs #bf & #bi74 ,h["e1 ! use (!
  pr9cipal resid;e exemp;n 0a taxpay] is
  limit$ 0ref];e 6! numb] ( tax,n ye>s
  5d+ af ! acquisi;n date dur+ : !
  taxpay] 0 resid5t 9 ,canada--see
  p>agraphs #h & #bb 7z 9dicat$ 9
  p>agraph #h1 8dur+0 a ye> m1ns at any
  "t 9 ! ye>74 ,?us1 ev5 if a prop]ty 9
  ,canada [n$ 0a non-resid5t qualifies z
  ! non-resid5t's pr9cipal resid;e1 !
  abv-m5;n$ 8resid;e 9 ,canada0
  require;t typic,y prev5ts ! non-
  resid5t f us+ ! pr9cipal resid;e
  exemp;n 6elim9ate a ga9 on ! 4posi;n
  (! prop]ty4
#db4 ,9 spite (! limit,n m5;n$ 9
  p>agraph #da 9 3nec;n )!           #hh
             ,,it-#abj;,r#f         e#ae
  pr9cipal resid;e exemp;n1 an elec;n "u
  subsec;n #de7#b7 or 7#c7 cd all[ a
  non-resid5t [n+ a prop]ty 9 ,canada
  6def] a taxa# capital ga9 : wd o!rwise
  result f a deem$ 4posi;n (a prop]ty on
  a *ange 9 xs use 7see p>agraphs #be &
  #bh74
#dc4 ,": a non-resid5t [n] (a prop]ty 9
  ,canada has r5t$ \ ! prop]ty 9 a
  "picul> tax,n ye> & has fil$ a
  subsec;n #de7#b7 or 7#c7 elec;n 9
  respect (! prop]ty1 see p>agraphs #be
  & #bh reg>d+ ! re/ric;ns on claim+
  ,,cca4 ,^! re/ric;ns apply ": ! non-
  resid5t elects 6report ! r5tal 9come
  "u sec;n #baf4 7,t elec;n is 4cuss$ 9
  ! curr5t v].n ( ,,it-#cic1 ,elec;n re
  ,tax on ,r5ts & ,timb] ,royalties--
  ,non-,resid5ts47




                                     #hi
       ,sec;n #aaf ,c]tificate =a   f#ae
     ,4posi;n (a ,pr9cipal ,resid;e
       9 ,canada 0a ,non-,resid5t
                  ,[n]
    
#dd4 ,": a non-resid5t wi%es 6obta9 a
  c]tificate "u sec;n #aaf (! ,act =a
  prop]ty 9 ,canada : ! non-resid5t
  proposes 64pose ( or has 4pos$ ( )9 !
  la/ #aj "ds1 a prepay;t on a3.t ( tax
  m/ 2 made or secur;y a3epta# 6! ,,ccra
  m/ 2 giv5 2f ! c]tificate w 2 issu$4
  ,=m ,t#bjfb1 ,reque/ 0a ,non-,resid5t
  ( ,canada =a ,c]tificate ( ,-pli.e
  ,relat$ 6! ,4posi;n ( ,taxa# ,canadian
  ,prop]ty1 or a simil> notific,n1 m/ 2
  fil$ 9 3nec;n )a
-------------------------------------#af
  reque/ =a sec;n #aaf c]tificate4
  ,fur!r "picul>s reg>d+ ! abv >e 3ta9$
  9 ! curr5t v].n ( ,9=m,n ,circul>
  #gb-ag1 ,proc$ures ,3c]n+ ! ,4posi;n (
  ,taxa# ,canadian ,prop]ty 0,non-
  ,resid5ts ( ,canada--,sec;n #aaf4 ,":
  "p or all ( any ga9 o!rwise        #ij
             ,,it-#abj;,r#f         a#af
  det]m9$ on ! 4posi;n (! prop]ty 0!
  non-resid5t is or w 2 elim9at$ 0!
  pr9cipal resid;e exemp;n1 ! am.t (
  prepay;t on a3.t ( tax 6be made or
  secur;y 6be giv5 may 2 reduc$ acly4
  ,an applic,n = s* a reduc;n %d 2 made
  0m1ns (a lr sign$ 0! taxpay] & atta*$
  6! -plet$ ,=m ,t#bjfb or simil>
  notific,n4 ,s* lr %d 3ta9 a calcul,n
  (! por;n (! ga9 o!rwise det]m9$ t is
  or w 2 s elim9at$ 0! pr9cipal resid;e
  exemp;n4
-------------------------------------#ag
       ,app5dix ;,a--,illu/r,n (!
       ,rule 9 ,subsec;n #dj7#f7
    
  ,if a taxpay] 4poses 7or is deem$
64pose7 (a prop]ty : ! taxpay] has [n$
7:e!r jo9tly ) ano!r p]son or o!rwise7
3t9u\sly s9ce 2f #aihb1 ! rule 9
subsec;n #dj7#f7 7see p>agraph #ab7
provides t ! ga9 calculat$ "u ! usual
me?od1 us+ ! pr9cipal resid;e exemp;n
=mula 9 p>agraph #h1 _c 2 grt] ?an   #ia
             ,,it-#abj;,r#f         a#ag
! maximum total net ga9 det]m9$ "u an
alt]native me?od4 ,"u ! alt]native
me?od1 "! is a hypo!tical 4posi;n on
,decemb] #ca1 #aiha & reacquisi;n on
,janu>y #a1 #aihb (! prop]ty at fair
m>ket value 7,,fmv74 ,! maximum total
net ga9 det]m9$ "u ! alt]native me?od is
!n calculat$ z foll[s3
  pre-#aihb ga9 plus po/-#aiha ga9 m9us
po/-#aiha loss equals maximum total net
ga9
  ":
    --! .pre-#aihb .ga9 is ! ga9 7if
      any71 z reduc$ 0! pr9cipal resid;e
      exemp;n =mula 9 p>agraph #h1 t wd
      result f ! hypo!tical 4posi;n at
      ,,fmv on ,decemb] #ca1 #aiha1
    --! .po/-#aiha .ga9 is ! ga9 7if
      any71 z reduc$ 0! pr9cipal resid;e
      exemp;n =mula 9 p>agraph #h )\t !
      8#a plus0 9 ! num]ator ;,b 9 t
      =mula1 t wd result f ! hypo!tical
      acquisi;n at ,,fmv on ,janu>y #a1
                                     #ib
             ,,it-#abj;,r#f         b#ag
      #aihb &! subsequ5t actual 7or
      deem$7 4posi;n1 &
    --! .po/-#aiha .loss is ! am.t ( any
      loss t has a3ru$ f ,decemb] #ca1
      #aiha 6! date (! subsequ5t actual
      7or deem$7 4posi;n1 i4e41 ! excess
      7if any7 (! ,,fmv on ,decemb] #ca1
      #aiha ov] ! proce$s 7or deem$
      proce$s7 f ! subsequ5t actual 7or
      deem$7 4posi;n4
  ,! examples : foll[ illu/rate ! rule 9
subsec;n #dj7#f74 ,x has be5 assum$ 9 ^!
examples t1 on ea* actual 4posi;n1 no
co/s 7 9curr$ 9 3nec;n ) t 4posi;n4

,example #a
  ,mrs4 ;,x acquir$ a h\se 9 #aige =
  4#ej1jjj4 ,%e & h] husb& liv$ 9 x
  until ,febru>y #aiif1 :5 %e sold x =
  4#aae1jjj1 result+ 9 an actual ga9 (
  4#fe1jjj 74#aae1jjj m9us 4#ej1jjj74
  ,"e s9ce ! sale (! h\se 9 #aiif1 ,mr4
  & ,mrs4 ;,x h be5 liv+ 9 r5t$
  premises4 ,9 fil+ h] #aiif 9come   #ic
             ,,it-#abj;,r#f         c#ag
  tax return1 ,mrs4 ;,x designat$ ! h\se
  z h] pr9cipal resid;e = #aige 6#aiie
  9clusive1 & ?us h] ga9 o!rwise det]m9$
  0 -pletely elim9at$ 0! pr9cipal
  resid;e exemp;n =mula 9 p>agraph #h3

,ga9 o!rwise det]m9$ 74#aae1jjj
  m9us 4#ej1jjj7 """""""""""""" 4#fe1jjj
,reduce 0pr9cipal resid;e
  exemp;n3 ;,a multipli$ 0;,b
  divid$ 0;,c equals 4#fe1jjj
  multipli$ 0#a plus #ba 7#aige
  6#aiie7 divid$ 0#bb 7#aige
  6#aiif7 """"""""""""""""""""" 4#fe1jjj
,ga9 """""""""""""""""""""""""""""" ,nil

  ,mr4 ;,x acquir$ a lot 9 #aige =
  4#g1jjj & built a cottage on x 9 #aigi
  = 4#ac1jjj4 ,mr4 & ,mrs4 ;,x us$ !
  cottage z a s1sonal resid;e f #aigi
  6#bjja 9clusive4 ,9 ! fall ( #bjja
  ,mr4 ;,x sold ! cottage = 4#fe1jjj1
  result+ 9 an actual ga9 ( 4#de1jjj
  74#fe1jjj m9us 74#g1jjj plus       #id
             ,,it-#abj;,r#f         d#ag
  4#ac1jjj774 ,9 fil+ 8 #bjja 9come tax
  return1 ,mr4 ;,x designat$ ! cottage
  prop]ty z 8 pr9cipal resid;e = #aigi
  6#aiha 9clusive1 z well z = #aiif
  6#bjja 9clusive4 ,he cd n designate !
  prop]ty z 8 pr9cipal resid;e = #aige
  6#aigh 9clusive 2c x 0 only a vacant
  lot & ?us no "o 8ord9>ily 9habit$0 x 9
  ^? ye>s 7see p>agraph #aa72 nor cd he
  designate ! prop]ty z 8 pr9cipal
  resid;e = #aihb 6#aiie 9clusive 2c ( 8
  wife's design,n (! h\se z h] pr9cipal
  resid;e = ^? ye>s 7see p>agraph #f74
  ,z a result1 n all ( 8 4#de1jjj ga9
  o!rwise det]m9$ 0 elim9at$ 0! pr9cipal
  resid;e exemp;n =mula 9 p>agraph #h4
  ,h["e1 2c ! prop]ty _h be5 [n$ 0,mr4
  ;,x 3t9u\sly s9ce 2f #aihb1 subsec;n
  #dj7#f7 appli$ = purposes ( -put+ 8
  ga94 ,! fair m>ket value (! cottage on
  ,decemb] #ca1 #aiha 0 4#cj1jjj4

  ,9 a4i;n 6! abv facts1 assume al t
  ,mr4 ;,x did n make a subsec;n     #ie
             ,,it-#abj;,r#f         e#ag
  #aaj.f7#ai7 capital ga9s elec;n )
  respect 6! cottage 7see ! 4cus.n ( ?
  elec;n 9 p>agraph #h7 2c he _h alr us$
  up 8 4#ajj1jjj life"t capital ga9s
  exemp;n 2f #aiid4 ,"!=e1 he _h no
  capital ga9s elec;n reduc;n am.t 7z
  describ$ 9 p>agraph #h7 ) respect 6!
  cottage4
-------------------------------------#ah
  ,! calcul,ns "u subsec;n #dj7#f7 9
  3nec;n ) ,mr4 ;,x's #bjja ga9 on !
  cottage 7 z foll[s3

  ,usual ,me?od ,= ,calculat+ ,ga93
,ga9 o!rwise det]m9$ 74#fe1jjj
  m9us 4#bj1jjj7 """""""""""""" 4#de1jjj
,reduce 0pr9cipal resid;e
  exemp;n3 ;,a multipli$ 0;,b
  divid$ 0;,c equals 4#de1jjj
  multipli$ 0#a plus #i 7#aigi
  6#aiha & #aiif 6#bjja7 divid$
  0#bg 7#aige 6#bjja7 """"""""" 4#af1ffg
,ga9 """""""""""""""""""""""""" 4#bh1ccc
                                     #if
             ,,it-#abj;,r#f         a#ah
  ,alt]native ,me?od--,calcul,n (
  ,maximum ,total ,net ,ga93
,pre-#aihb ga93
,ga9 o!rwise det]m9$ 74#cj1jjj
  m9us 4#bj1jjj7 """""""""""""" 4#aj1jjj
,reduce 0pr9cipal resid;e
  exemp;n3 ;,a multipli$ 0;,b
  divid$ 0;,c equals 4#aj1jjj
  multipli$ 0#a plus #c 7#aigi
  6#aiha7 divid$ 0#g 7#aige
  6#aiha7 """""""""""""""""""""" 4#e1gad
,ga9 """"""""""""""""""""""""""" 4#d1bhf

,po/-#aiha ga93
,ga9 o!rwise det]m9$ 74#fe1jjj
  m9us 4#cj1jjj7 """""""""""""" 4#ce1jjj
,reduce 0pr9cipal resid;e
  exemp;n3 ;,a multipli$ 0;,b
  divid$ 0;,c equals 4#ce1jjj
  multipli$ 0#f 7#aiif 6#bjja7
  divid$ 0#bj 7#aihb 6#bjja7 "" 4#aj1ejj
,ga9 """""""""""""""""""""""""" 4#bd1ejj

                                     #ig
             ,,it-#abj;,r#f         b#ah
,po/-#aiha loss3
,n/,a """"""""""""""""""""""""""""" ,nil

,pre-#aihb ga9 plus po/-#aiha ga9 m9us
  po/-#aiha loss
  equals 4#d1bhf plus 4#bd1ejj m9us ,nil
  equals 4#bh1ghf4
  
,,result3
  ,mr4 ;,x's ga9 rema9$ at ! 4#bh1ccc
  calculat$ "u ! usual me?od s9ce t am.t
  did n exce$ ! maximum total net ga9 (
  4#bh1ghf calculat$ "u ! alt]native
  me?od4

,example #b
  ,assume ! same facts 9 ,example #a
  except t ! c\ple >e 9 a -mon-law
  rel,n%ip r ?an a m>ri$ c\ple4

  ,9 fil+ 8 #bjja 9come tax return1 ,mr4
  ;,x designat$ ! cottage prop]ty z 8
  pr9cipal resid;e = #aigi 6#aiib
  9clusive1 z well z = #aiif         #ih
             ,,it-#abj;,r#f         c#ah
  6#bjja 9clusive4 ,he cd n designate !
  prop]ty z 8 pr9cipal resid;e = #aige
  6#aigh 9clusive 2c x 0 only a vacant
  lot & ?us no "o 8ord9>ily 9habit$0 x 9
  ^? ye>s 7see p>agraph #aa72 nor cd he
  designate ! prop]ty z 8 pr9cipal
  resid;e = #aiic 6#aiie 9clusive 2c ( 8
  -mon-law "pn]'s design,n (! h\se z h]
  pr9cipal resid;e = ^? ye>s 7see
  p>agraph #f74 ,z a result1 n all ( 8
  4#de1jjj ga9 o!rwise det]m9$ 0
  elim9at$ 0! pr9cipal resid;e exemp;n
  =mula 9 p>agraph #h4

  ,! calcul,ns "u subsec;n #dj7#f7 9
  3nec;n ) ,mr4 ;,x's #bjja ga9 on !
  cottage 7 z foll[s3






                                     #ii
             ,,it-#abj;,r#f         d#ah
  ,usual ,me?od = ,calculat+
    ,ga93
,ga9 o!rwise det]m9$ 74#fe1jjj
  m9us 4#bj1jjj7 """""""""""""" 4#de1jjj
,reduce 0pr9cipal resid;e
  exemp;n3 ;,a multipli$ 0;,b
  divid$ 0;,c equals 4#de1jjj
  multipli$ 0#a plus #bj 7#aigi
  6#aiib & #aiif 6#bjja7 divid$
  0#bg 7#aige 6#bjja7 """"""""" 4#ce1jjj
,ga9 """""""""""""""""""""""""" 4#aj1jjj

  ,alt]native ,me?od--,calcul,n (
  ,maximum ,total ,net ,ga93
,pre-#aihb ga93
,ga9 o!rwise det]m9$ 74#cj1jjj
  m9us 4#bj1jjj7 """""""""""""" 4#aj1jjj
,reduce 0pr9cipal resid;e
  exemp;n3 ;,a multipli$ 0;,b
  divid$ 0;,c equals 4#aj1jjj
  multipli$ 0#a plus #c 7#aigi
  6#aiha7 divid$ 0#g 7#aige
  6#aiha7 """""""""""""""""""""" 4#e1gad
                                    #ajj
             ,,it-#abj;,r#f         e#ah
,ga9 """"""""""""""""""""""""""" 4#d1bhf
-------------------------------------#ai
,po/-#aiha ga93
,ga9 o!rwise det]m9$ 74#fe1jjj
  m9us 4#cj1jjj7 """""""""""""" 4#ce1jjj
,reduce 0pr9cipal resid;e
  exemp;n3 ;,a multipli$ 0;,b
  divid$ 0;,c equals 4#ce1jjj
  multipli$ 0#ag 7#aihb 6#aiib &
  #aiif 6#bjja7 divid$ 0#bj
  7#aihb 6#bjja7 """""""""""""" 4#bi1gej
,ga9 """"""""""""""""""""""""""" 4#e1bej
,po/-#aiha loss3 ,n/,a """""""""""" ,nil

,pre-#aihb ga9 plus po/-#aiha ga9 m9us
  po/-#aiha loss
  equals 4#d1bhf plus 4#e1bej m9us ,nil
  equals 4#i1ecf4
  
,,result3
  ,al? ,mr4 ;,x's ga9 calculat$ "u !
  usual me?od 0 4#aj1jjj1 s* ga9 cd n
  exce$ ! maximum total net ga9 (
  4#i1ecf calculat$ "u !            #aja
             ,,it-#abj;,r#f         a#ai
  alt]native me?od4 ,"!=e1 ! ga9 0
  reduc$ 64#i1ecf4
-------------------------------------#bj
       ,app5dix ;,b--,illu/r,n (
      ,calcul,n ( ,ga9 on ,4posi;n
            (a ,f>m ,prop]ty
    
  ,assume t a taxpay] resid5t 9 ,canada
sold a #ej hect>e f>m4 ,! taxpay] [n$ !
f>m & o3upi$ ! h\se on x f ,july #cj1
#aiic 6,june #ae1 #bjja4 ,! h\se & "o-
half hect>e (! l& h be5 designat$ z !
taxpay]'s pr9cipal resid;e =! #aiic
6#bjja tax,n ye>s 9clusive4 ,! taxpay]'s
calcul,ns (! ga9 on ! 4posi;n (! f>m
prop]ty1 us+ ! two me?ods p]mitt$
0p>agraph #dj7#b77c7 (! ,act1 >e z
foll[s3





                                    #ajb
             ,,it-#abj;,r#f         a#bj
  ,f/ ,me?od 7see p>agraph #ba7

 """"""""" ,pr9cipal "" ,f>m "" ,total
 """"""""" ,resid;e """""""""" ,prop]ty
,proce$s (
4posi;n
  ,l& """"" 4#aj1jjj  4#ij1jjj 4#ajj1jjj
  ,h\se """ 4#ej1jjj  ---- """" 4#ej1jjj
  ,b>n """" ---- """" 4#ce1jjj  4#ce1jjj
  ,silo """ ---- """" 4#ae1jjj  4#ae1jjj
   """""""" 4#fj1jjj 4#adj1jjj 4#bjj1jjj
  
,adju/$ co/ base
  ,l& """""" 4#b1jjj  4#eh1jjj  4#fj1jjj
  ,h\se """ 4#bj1jjj  --- """"" 4#bj1jjj
  ,b>n """" ---- """" 4#aa1jjj   #aa1jjj
  ,silo """ ----       4#d1jjj   4#d1jjj
   """""""" 4#bb1jjj  4#gc1jjj  4#ie1jjj
  




                                    #ajc
             ,,it-#abj;,r#f         b#bj
,ga9 o!rwise
  det]m9$   4#ch1jjj  4#fg1jjj 4#aje1jjj
,less3
  ,pr9cipal
  resid;e
  exemp;n   #ch1jjj   ---- """" 4#ch1jjj
,ga9 """""" ,nil """" 4#fg1jjj  4#fg1jjj

,transcrib]'s note3
  7,! foll[+ footnote applies 6,proce$s
  ( 4posi;n--,l& 4#aj1jjj & ,adju/$ co/
  base--,l& 4#b1jjj74

99 ,s9ce ! pr9cipal resid;e por;n (! l&
  is #a ov] #ajj (! total l& 7i4e41 "o-
  half hect>e divid$ 0#ej hect>es71 "o
  way 7z describ$ 9 p>agraph #ba7a77 (
  assign+ values 6! pr9cipal resid;e
  por;n (! l& wd 2 6simply use 4#a1jjj
  7i4e41 #a ov] #ajj ( 4#ajj1jjj7 =!
  proce$s = s* por;n (! l& & 4#fjj
  7i4e41 #a ov] #ajj ( 4#fj1jjj7 =!
  adju/$ co/ base ( s* por;n4 ,assume1
  h["e1 t a typical resid5tial      #ajd
             ,,it-#abj;,r#f         c#bj
  lot 9 ! >ea1 al? less ?an "o-half
  hect>e 9 ? example1 _h a fair m>ket
  value ( 4#aj1jjj z (! date ( sale &
  4#b1jjj z (! date ( acquisi;n4 ,z
  9dicat$ 9 p>agraph #ba7b71 we wd a3ept
  ! taxpay]'s use (! latt] am.ts1 : 9 ?
  case wd result 9 a grt] por;n (! ga9
  o!rwise det]m9$ 2+ elim9at$ 0!
  pr9cipal resid;e exemp;n4

  ,second ,me?od 7see p>agraph #bb7
,proce$s ( 4posi;n = total f>m
  prop]ty """""""""""""""""""" 4#bjj1jjj
,adju/$ co/ base = total f>m
  prop]ty """"""""""""""""""""" 4#ie1jjj
,ga9 o!rwise det]m9$ """"""""" 4#aje1jjj
,less3 ,pr9cipal resid;e exemp;n
  us+ subp>agraph
  #dj7#b77c77;ii7 elec;n3
  4#a1jjj plus 7#i multipli$
  04#a1jjj7 """"""""""""""""""" 4#aj1jjj
,ga9 """""""""""""""""""""""""" 4#ie1jjj

                                    #aje
             ,,it-#abj;,r#f         d#bj
,,result3
  ,9 ? example1 ! f/ me?od results 9 a
  l[] ga9 6! taxpay]4
-------------------------------------#ba
          ,explan,n ( ,*anges
    
               ,9troduc;n
    
  ,! purpose (! ,explan,n ( ,*anges is
6give ! r1sons =! revi.ns 6an 9t]pret,n
bullet94 ,x \tl9es revi.ns t we h made z
a result ( *anges 6! law1 z well z
*anges reflect+ new or revis$ ,,ccra
9t]pret,ns4

           ,r1sons =! ,revi.n
    
  ,? bullet9 is 2+ revis$ 6reflect
legislative *anges 5act$ "u ,s4,c4
#bjjj1 c4#ab 7=m]ly ,bill ;,c-#bc7 &
,s4,c4 #bjja1 c4#ag 7=m]ly ,bill
;,c-#bb74 ,! -;ts 9 ! bullet9 >e n
a6ect$ 0any propos$ legisl,n rel1s$ 2f
,june #i1 #bjjc4                    #ajf
          ,legislative & ,o!r       a#ba
                ,*anges
    
  ,! bullet9 has be5 revis$ 6reflect !
rep1l ( subsec;n #beb7#d7 &! a4i;n (!
t]m 8-mon-law "pn]0 6! ,act4 ,specific
4cus.ns on ? topic h be5 a4$ 6p>agraphs
#b & #f (! bullet94
  ,! 4cus.n 9 =m] p>agraph #ab on sp\sal
tru/s & subsec;n #ajg7#d7 has be5 remov$
s9ce p>agraph #ajd7#d77a7 n[ al ref]s
6jo9t sp\sal or -mon-law "pn] tru/s &
alt] ego tru/s4 ,a 4cus.n on ^! types (
tru/s &! applic,n ( subsec;n #ajg7#d7
6^! tru/s is \tside (! scope ( ?
bullet94 ,! rema9d] ( =m] p>agraph #ab
has be5 mov$ 6p>agraph #cf4
  ,we h a4$ a -;t 9 p>agraph #ae reg>d+
recre,nal or life/yle uses = l& 9 excess
( "o-half hect>e4
  ,p>agraph #ag has be5 exp&$ 6cl>ify !
,,ccra's 9t]pret,n4 ,! previ\s v].n
3templat$ t a taxpay] wd subdivide &
immly sell ! newly cr1t$ lots4 ,-;ts h
be5 a4$ 6al a4ress ! situ,n ": a    #ajg
           ,explan,n ( *anges       b#ba
taxpay] subdivides 8 or h] prop]ty b !n
holds ! lots =a p]iod ( "t4
  ,p>agraph #ch 7=m]ly p>agraph #cf7 n[
a4resses ! rules 9 subsec;n #dj7#d7 z !y
relate 6alt] ego tru/s & jo9t sp\sal &
-mon-law "pn] tru/s 0virtue ( _! a4i;n
6! li/ ( qualify+ transf]s set \ 9 new
subsec;n #gc7#a.ja7 (! ,9come ,tax ,act4
,specific ref];es 6sp\sal tru/s h be5
remov$ f p>agraph #ch z ! rules n[ apply
6! a=em5;n$ tru/s z well4
  ,! v>i\s examples 9 ! bullet9 & xs
app5dices h be5 updat$ 6reflect m curr5t
ye>s & curr5t law4
  ,"?\t ! bullet91 we h made o!r *anges
= cl>ific,n or r1dabil;y purposes1 & we
h delet$ items : 7 redundant or : no
l;g] h any relev.e4





                                    #ajh