What is a Principal Residence?
As the name implies, your Principal Residence (PR) is the main home where you and your family reside. Your PR could be a house, condo, mobile home, cottage, houseboat, etc. In the simplest terms, it’s the place where you live the majority of the time. If you sell your PR after 2017, you are required to report the sale on Schedule 3 of your tax return, as well as fill out Form T2091(IND).
The Principal Residence Exemption
In Canada, if you sell property for more than you paid for it, your profit is usually subject to capital gains tax. Your PR, however, is usually exempt from capital gains rules. If you’ve made a tidy profit from the sale of your PR, all you’ll need to do is report the sale details on your tax return. As long as your home was your principal residence for the entire time you owned it, your profit will not be taxed.
For example, imagine you purchased your home 10 years ago for $100,000. Last month, you sold it for $300,000.
If the property was wholly used as your PR for the entire 10 years (not used as a business or rental), the $200,000 profit you made is completely exempt from tax. You just need to report the details of the sale on your tax return.
But if your principal residence was used to earn income, different rules apply. When you sell, your profit may not be exempt from tax.
For more information, please see our TurboTax article: What Is the Principal Residence Exemption and How Does It Work?
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