The primary residence exemption allows a homeowner to sell their home and receive the proceeds tax-free. A house can be a house, apartment, vacation home, RV, trailer, or even a houseboat.
Exemption from primary residence under the CRA
There are a few key Canada Revenue Agency (CRA) criteria for applying for Primary Residence Exemption, David. One of them is that the taxpayer has to habitually live in the home for each year that the tax exemption is claimed. That doesn’t necessarily mean they have to live in the apartment at the time of sale. This is a common misconception. I’ve even met people who mistakenly believe that moving to a rental apartment and living there for a year before selling it makes the proceeds tax free. News: It doesn’t.
The main residence exemption is based on each year of ownership. For example, if someone owned a house and a country house for 10 years, then sold their house and moved into their country house and lived there for another 20 years, they may be able to claim the primary residence exemption for both properties. That means they can claim the primary residence exemption on their home for the 10 years it was owned and then apply for a prorated primary residence exemption on their cottage. The proportionate exemption would be based on the 20 out of 30 years (2/3 or 66.6%) that the cottage was the only property they lived and owned (more details follow in the formula).
Interestingly, a cottage can still be your primary residence even if you only live in it for part of the year. The main residence exemption does not apply to the apartment in which you mainly live, but to every apartment that you usually live in during the year.
Owned every year counts
To delve a little deeper into the formula for the main residence exemption, there is a special «Plus 1» rule that adds one year to the year of ownership when calculating the exemption.
The reason for this is that if you sell and buy a property in the same year, you can still treat both properties as your primary residence that year. It also means that if someone moves out of their house and sells it in the next year, the property can become their primary residence for that additional year.
Selling or keeping a home for a senior
A question for you, David: Why is the property not being sold despite being senior citizen? I know this can be a sensitive issue. For a homeowner beginning to lose their independence, they may not want to sell their home or they may not want to move out at all. Or they want to reserve the right to move back home, even if it is unlikely. For children, home can be what they grew up in and they are emotionally attached to it.