Selling your home can be a major event, and you may wish to know the tax implications. In Canada, if the home you’re selling is your primary residence, your tax situation is simple and won’t affect your taxable income.
Homes that you use for vacations or rental income present different circumstances, though.
The Principal Residence Exemption (PRE)
“The home in which you live provides a natural tax shelter under Canadian law, when it meets certain conditions,” says Jeff Stokley, chartered investment manager and financial management advisor with Investors Group in London, Ontario.
- For your home to qualify as your principal residence, you must own the property and normally live there.
- In some cases, though, you may be permitted to choose a vacation property as your principal residence, but only if it’s for your own vacations and not used to earn rental income.
There are restrictions to the amount of property on which the residence sits.
- If the lot exceeds one-half hectare, you may be required to show that the remainder of the lot is needed for the use and enjoyment of the residence.
- Local zoning also may exempt you from the one-half hectare requirement.
In the sale of a property that qualifies for the PRE, any capital gain or loss is exempt from income tax claim or deduction.
When the PRE Doesn’t Apply
- Homes that you own exclusively for rental purposes, at which you do not reside or use for business purposes don’t qualify for the PRE.
- Renting space in your principal residence also may disqualify the property. However that typically requires that you rent more than 50 percent of your home.
Renting a room or your basement likely will not affect your exemption status, unless you decide to claim depreciation on the rented portion. If less than 50 percent of your home is rented, you should prevail, but claiming the PRE and a capital cost allowance may trigger a Canada Revenue Agency (CRA) review.
If you own a multi-unit dwelling with three or more units, the exemption won’t apply even if you choose to live there.
Selling an Investment Home
When you sell a home that doesn’t qualify for the PRE, claiming capital gains or losses becomes available to you. To determine the taxable capital gain, multiply the capital gain by the year’s inclusion rate (the rate for 2019 is ½).
When you sell a multiple-unit home, such as a duplex, in which you lived in one unit and rented the remainder, you can still qualify for the PRE on a portion of the building. So capital gains only apply to the rental portion of the property.
For example, if a duplex sold for $100,000 more than the purchase price, and the owner lived in one unit for the entire period of ownership, $50,000 of this amount is sheltered by the PRE, while $50,000 capital gain is reported on the owner’s tax return.
Moving Expenses
Moving expenses can be claimed when you sell your house, but only when your relocation meets certain requirements.
If you’re moving to be nearer to your place of employment, to run a business or for full-time, post-secondary study, and the move brings you at least 40 kilometres closer to your school or workplace, your moving costs are eligible for deduction.
Moving and storage fees can be claimed, whether you rent a truck or hire a mover. Meals and hotel charges accrued during your move qualify, as do the costs of selling your home.
Expenses not allowed include losses resulting from the sale of a principle residence, expenses for repairs and upgrades to make your house more saleable, mail forwarding and job-search expenses.
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References & Resources
- Jeff Stokley CIM, FMA; Investors Group, London, Ontario
- MoneySense: Can You Avoid Capital Gains Tax?
- Canada Revenue Agency: Income Tax Folio: Principal Residence
- The Globe and Mail: How to Ensure Your Home Sale Will Be Tax-Free
- Canada Revenue Agency: Principal Residence and Other Real Estate
- Desjardins: Tax-Deductible Moving Expenses