What Counts as a Principal Residence Under Current Tax Rules

One of the most common questions we get asked is whether profits from selling a house, cottage, or other property are taxable. Depending on the use of the property, there may or may not be taxes due on the profit you made from the sale.

If you are selling a property that was your principal residence for every year that you owned it, you do not have to pay tax on the capital gain realized from the sale of the property. This is due to the Principal Residence Exemption (PRE).

If the property you intend to sell has not been your principal residence at any time during the period you owned the property, you may not be able to benefit from the principal residence exemption on all of the realized capital gain.

A principal residence can be any of the following:

• House
• Cottage
• Condo
• Apartment
• Trailer, mobile home, or houseboat

To be classified as a principal residence, your property must be a qualifying housing unit, be owned by you alone or as a joint owner, be “ordinarily inhabited” by you or an eligible family member, and be designated as a principal residence for any given year. “Ordinarily inhabited" generally means that you must live there at some point in the year; so, properties that you hold as investments or rental-only properties will not qualify.

It is important to note that if you own more than one property, you can only designate one property per year as your principal residence. If you have a spouse and own multiple properties, you cannot each designate different properties as your principal residences to gain the PRE on more than one property; you must both designate the same property.

If your property qualifies, you designate your home as your principal residence at the time when you sell it. You do not need to declare if a property has been your principal residence year by year.

For more information on what qualifies as a principal residence and the process for designating the property, see here.

If you are considering selling a property, our team can help plan how the sale proceeds are integrated into your overall plan, whether to support income needs, for reinvestment, or for other longer-term strategies.