When you sell your home or when you are considered to have sold it, usually you do not have to pay tax on any gain from the sale because of the principal residence exemption. This is the case if the property was solely your principal residence for every year you owned it. Before 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. For dispositions in 2016, you had to report the sale and designate the property on Schedule 3, Capital Gains (or Losses) in all situations. For dispositions in 2017 and later years, in addition to reporting the sale and designating your principal residence on Schedule 3, you also have to complete Form T2091(IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust). Complete only page 1 of Form T2091 if the property you sold was your principal residence for all the years, or for all but one year, that you owned it. For the sale of a principal residence in 2016 and subsequent years, CRA will only allow the principal residence exemption if you report the disposition and designation of your principal residence on your income tax return.
If you forget to make this designation in the year of the disposition, it is very important to ask CRA to amend your income tax return for that year. Under proposed changes, CRA will be able to accept a late designation in certain circumstances, but a penalty may apply. 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 Form T2091(IND). You are also required to complete the applicable sections of Schedule 3 as indicated on page 2 of the schedule. If you are the legal representative for a deceased person, you can designate a property using Form T1255, Because your home is considered personal-use property, if you have a loss at the time you sell or are considered to have sold your home, you are not allowed to claim the loss. 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 meters or the number of rooms, as long as the split is reasonable. if you filed a capital gains election on the property you disposed of you may need to complete the T2091(IND)-WS , Principal residence worksheet. CRA will consider the entire property to maintain its nature as a principal residence in spite of the fact that you have used it for income producing purposes when all of the following conditions are met: • The income producing use is ancillary to the main use of the property as a residence. • There is no structural change to the property. • No capital cost allowance is claimed on the property. This situation could occur, for example, where the property is used as a home day care. For more information, please consult Income Tax Folio S1-F3-C2, Principal Residence. 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).