When you sell, or are considered to have sold, your home you do not have to pay tax on any gain from the sale because of the Principal Residence Exemption, and this is the case if the property was solely your principal residence for every year you owned it.
Prior to 2016, if you sold your property and it was your principal residence for every year you owned it, you did not have to report the sale to claim the principal residence exemption.
In 2016, under the same scenario, you had to report the sale and designate the property on Schedule 3, Capital Gains (or Losses) in all situations.
In 2017 and onward, in addition to reporting the sale and designating your principal residence on Schedule 3, you also have to complete Canada Revenue Agency (CRA) Form T2091(IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust).
Why report the sale?
If you sell your principal residence and forget to report it to the CRA, they will charge a penalty if they find out first. You can always amend a return to report the sale, which is strongly recommended.
Sale of Property NOT your Principal Residence
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 CRA 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.
Loss on Sale of Home
Homes are considered to be Personal-use Property – An item that you own primarily for the personal use or enjoyment of your family and yourself, including all personal and household items, such as furniture, automobiles, boats, a cottage, and other similar properties – which means if there is a loss at the time the property is sold (or considered to have sold) the loss is not eligible to be claimed.
If only a part of your home qualifies as your principal residence and you used the other part to earn or produce income, you have to split the selling price and the adjusted cost base between the part you used for your principal residence and the part you used for other purposes (for example, rental or business). You can do this by using square metres or the number of rooms, as long as the split is reasonable.
Sale of Multiple Properties
If you sold more than one property in the same calendar year and each property was, at one time, your principal residence, you must show this by completing a separate Form T2091(IND) for each property to designate what years each was your principal residence and to calculate the amount of capital gain, if any, to report on line 158 of Schedule 3, Capital Gains (or Losses).
Completing your Schedule 3
The gain on the part of the property which was used to produce income is reported on line 138 of Schedule 3. Page 2 of Schedule 3 must also be completed to report the sale of your principal residence.
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CRA 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