When you sell your principal residence, you usually do not have to report the sale on your personal tax return, nor must you pay taxes on the sale or on any capital gain you may have incurred. A principal residence is a housing unit such as a house, cottage, condo, or apartment that you own and in which you live most of the time. However, changes in your principal residence may also result in changes to your tax filings with the Canada Revenue Agency.
Did You Move?
When you move from one home to another, you may live at a new property that you have established as your principal residence, yet still own your old house. Since the old property is no longer considered your principal residence, you are required to report part of the capital gain on it.
To make such a report, you may use either form T2091(IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust), or form T1255, Designation of a Property as a Principal Residence by the Legal Representative of a Deceased Individual.
Form T2091 allows you to designate a property as a principal residence and calculate how much of the capital gain on the property should be reported for tax purposes. You will need to disclose the purchase date, the number of years it was a designated principal residence, the cost of the property, the selling price, and any expenses that were incurred as a result of the sale. Note that the date used for calculation is either the date that you purchased the property or Dec. 31, 1971 — whichever is later.
Form T1255 is to be completed by a legal representative of a deceased person if it is required to designate the property as a principal residence. The form involves the same calculations as T2091, however, it is signed by the representative on behalf of the estate of the deceased individual.
Additionally, a final worksheet called the T2091 (IND)-WS, Principal Residence Worksheet should also be completed with either the T2091 (IND) or T1255 to assist in calculating any potential reduction claims.
If there is a capital gain to report, you must submit your completed forms along with your annual income tax return to the CRA. If the sale of the property leads to a capital loss because the home is considered to be personal-use property — property owned primarily for the personal use or enjoyment of your family and yourself — you are not allowed to claim the loss.
Did You Rent Part of the Property?
If you rented out part of the principal residence during the time you owned it, or part of it was a used as a business to earn income, you may need to report part of the capital gain. If so, file form T664 to calculate the gain. In addition to the T664, you may need to complete form T2091 (IND)-WS, Principal Residence Worksheet.