Sale of your principal residence
When you sell your home or when you are considered to have sold it, usually you do not have to pay tax on any gain from the sale. This is the case if the property was solely your principal residence for every year you owned it. Starting in 2016, if you sold your principal residence, and it was your principal residence for every year you owned it, you do have to report the sale on page 2 of Schedule 3, Capital Gains (or Losses) in 2016.
John (a resident of Canada) put his principal residence (property 1) up for sale in January 2016. Property 1 has been John’s only principal residence for all the time he has owned it. He purchased a new house (property 2) in February 2016 and took possession of it as his principal residence in March. There is a special rule (the “plus 1” rule) that allows a taxpayer to treat both properties as eligible for the principal residence exemption for a year where one residence is sold and another is purchased in the same year, even though only one of them may be designated as such for that year. For this reason, John can tick box 1 at line 179 on page 2 of Schedule 3 to designate property 1 as his principal residence for all years including 2016 (or for all years except one year), and the CRA will not require Form T2091(IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust) to be completed, assuming John finally sold property 1 before the end of 2016. However, John should keep his decision in writing for future reference, especially for when he sells property 2.
For dispositions that occur after October 2, 2016, for a taxpayer to be eligible for the "plus 1" rule, the taxpayer must be resident in Canada during the year the principal residence is purchased. Therefore, if a taxpayer is non-resident throughout the taxation year in which the property was purchased, the taxpayer will not be eligible for the extra year in calculating the principal residence exemption amount.
If your home was not your principal residence for every year that you owned it, you have to report the part of the capital gain on the property that relates to the years for which you did not designate the property as your principal residence. To do this, complete Form T2091(IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust). You are also required to complete the applicable sections of Schedule 3 as indicated on page 2 of the schedule. If you are the legal representative for a deceased person, you can designate a property using Form T1255, Designation of a Property as a Principal Residence by the Legal Representative of a Deceased Individual.
Because your home is considered personal-use property, if you have a loss at the time you sell or are considered to have sold your home, you are not allowed to claim the loss.
In 2016, Jackie disposed of three properties. Property 1 was acquired by Jackie in 2000 and he designated it as his principal residence from 2000 to 2005. He acquired Property 2 in 2006 and he designated this property as his principal residence from 2006 to 2010. Jackie acquired Property 3 in 2011 and he designated it as his principal residence from 2011 to 2016. On his Schedule 3, Jackie ticks box 3 at line 179 on page 2 and also completes the address information, year of acquisition and proceeds of disposition for each of the three properties. He then completes Form T2091 (IND) for each property to calculate the amount of capital gain, if any, he needs to report at line 158 on page 1 of his Schedule 3.
Completing your Schedule 3
Report on line 138 of Schedule 3 only the gain on the part you used to produce income. You are also required to complete page 2 of Schedule 3 to report the sale of your principal residence. For information on how to report the gain see Real estate, depreciable property, and other properties. You will also find an example showing how to report the capital gain on a disposition of land and building for a principal residence partly used for earning income.
Forms and publications
- Guide T4036, Rental Income
- Guide T4037, Capital Gains
- Form T1255, Designation of a Property as a Principal Residence by the Legal Representative of a Deceased Individual
- Form T2091(IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust)
- Form T2091(IND)-WS, Principal residence worksheet
- Income Tax Folio S1-F3-C2, Principal Residence
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