What you need to know about claiming the principal residence exemption on the sale of property
One of the most valuable tax breaks Canadians have is the ability to claim the principal residence exemption (PRE) on the sale of a home. The PRE provides homeowners with an exemption from tax on the capital gain realized when you sell the property that you have designated as your principal residence.
Recent changes to the Canada Revenue Agency’s requirements now require you to report the sale of your principal residence on your tax return. The designation of your principal residence is reported on Schedule 3 of your return and you must also complete the appropriate sections of Form T2091(IND), Designation of a Property as a Principal Residence by an Individual.
Under the Income Tax Act, in order for a property to qualify as your principal residence for a particular tax year, four criteria must be satisfied: the property must be a housing unit; you must own the property (either alone or jointly with someone else); you or your spouse or kids must “ordinarily inhabit” the property; and you must “designate” the property as a principal residence.