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Half of a hectare (1.24 acres)
- The land on which your home is located can be part of your principal residence. Usually, the amount of land that you can consider as part of your principal residence is limited to half of a hectare (1.24 acres).
www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-12700-capital-gains/principal-residence-other-real-estate/what-a-principal-residence/does-a-property-qualify.html
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How much land can I consider as a principal residence?
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How long does a property qualify as a principal residence?
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Can a housing unit be considered a principal residence?
Usually, the amount of land that you can consider as part of your principal residence is limited to half of a hectare (1.24 acres). However, if you can show that you need more land to use and enjoy your home, you can consider more than this amount as part of your principal residence.
- Income Tax Folio S1-F3-C2, Principal Residence - Canada.ca
The term principal residence is defined in section 54. The...
- Principal residence and other real estate - Canada.ca
What is a principal residence? What type of housing unit can...
- Income Tax Folio S1-F3-C2, Principal Residence - Canada.ca
- Overview
- Summary
- Table of contents
- Discussion and interpretation
- Application
- Reference
This Chapter discusses the principal residence exemption, which can eliminate or reduce (for income tax purposes) a capital gain on the disposition of a taxpayer’s principal residence.
In order for a property to qualify for designation as the taxpayer’s principal residence, he or she must own the property. Joint ownership with another person qualifies for this purpose.
The housing unit representing the taxpayer’s principal residence generally must be inhabited by the taxpayer or by his or her spouse or common-law partner, former spouse or common-law partner, or child. A taxpayer can designate only one property as his or her principal residence for a particular tax year. Furthermore, for a tax year that is after the 1981 year, only one property per family unit can be designated as a principal residence.
The Canada Revenue Agency (CRA) issues income tax folios to provide a summary of technical interpretations and positions regarding certain provisions contained in income tax law. Due to their technical nature, folios are used primarily by tax specialists and other individuals who have an interest in tax matters. While each paragraph in a chapter of a folio may relate to provisions of the law in force at the time it was written (see the Application section), the information provided is not a substitute for the law. The reader should, therefore, consider the chapter’s information in light of the relevant provisions of the law in force for the particular tax year being considered.
•Discussion and interpretation
•Introduction
•When the sale of a property results in business income
•Types of property that can qualify as a principal residence
•Ownership is required
•The ordinarily inhabited rule
Introduction
2.1 Various topics concerning the principal residence exemption are discussed in this Chapter. It should be noted that some of these topics are not relevant for all taxpayers. For example, a resident of Canada who owns only one housing unit which is situated in Canada on land of one-half hectare or less and which has been used since its acquisition strictly as their residence, will usually find that ¶2.32 to 2.78 have no particular relevance. 2.2 Subject to the flipped property rules, if a property qualifies as a taxpayer’s principal residence, they can use the principal residence exemption to reduce or eliminate any capital gain otherwise occurring, for income tax purposes, on the disposition (or deemed disposition) of the property. The term principal residence is defined in section 54. The principal residence exemption is claimed under paragraph 40(2)(b), or under paragraph 40(2)(c) where land used in a farming business carried on by the taxpayer includes his or her principal residence. 2.3 Unless otherwise stated, any reference in this Chapter to a tax year or year means a particular tax year for which the principal residence exemption is being claimed. 2.4 Various references are made throughout this Chapter to a taxpayer’s spouse or common-law partner and child. For the 1993 to 2000 tax years, former subsection 252(4) extended the meaning of the term spouse to include a common-law spouse of the opposite sex. Effective in 2001, the extended meaning of spouse in subsection 252(4) has been replaced with the term common-law partner in subsection 248(1) which can now also include a person of the same sex. A transitional rule for the 1998, 1999 and 2000 tax years allowed same-sex couples to elect to be treated as common-law partners under the Act for those years. For more information about the meaning of the terms spouse and common-law partner, see the current version of the Guide 5000-G, General Income Tax and Benefit Guide. For purposes of applying the rules in subsections 70(6) and 73(1) as discussed in ¶2.69, see also the extended meaning of spouse and former spouse in subsection 252(3), as it reads for the particular tax year being considered. Subsection 252(1), as it reads for the particular tax year being considered, extends the meaning of child for purposes of applying all the rules in the Act, including the principal residence exemption rules, for that year. 2.5 It is also possible for a personal trust to claim the principal residence exemption on the disposition of a property. This is discussed in ¶2.65 to 2.66.4 and ¶2.69.
When the sale of a property results in business income
2.6 Where the gain from the sale of a taxpayer’s personal residence results in business income (as opposed to a capital gain), the gain cannot be exempt from income tax as a result of the principal residence exemption under paragraph 40(2)(b). An individual does not have to be involved in the housing construction industry to have business income from the sale of houses, and the sale of one house can result in business income. For more information about taxpayers buying and selling their own houses for the purpose of earning income, see Interpretation Bulletin IT-218R, Profits, Capital Gains and Losses from the Sale of Real Estate, Including Farmland and Inherited Land and Conversion of Real Estate from Capital Property to Inventory and Vice Versa, and Interpretation Bulletin IT-459, Adventure or Concern in the Nature of Trade. 2.6.1 Residential properties (including residential rental properties) that are sold on or after January 1, 2023, are subject to the flipped property rules. These rules ensure that profits from residential property flipping are fully included in income for dispositions that occur after 2022. Where these rules apply, profits on the sale of a flipped property (as that term is defined in subsection 12(13)) cannot be treated as a capital gain and the principal residence exemption is not available. 2.6.2 Specifically, the flipped property rules rely on a deeming rule in subsection 12(12). This deeming rule is applicable to all taxpayers, including corporations. If it applies, profits from the sale of a taxpayer’s flipped property will be deemed to be business income and fully included in income. Flipped property generally means a housing unit, or a right to acquire a housing unit, (other than inventory) located in Canada that was owned by the taxpayer, or in the case of a right to acquire, held by the taxpayer for less than 365 consecutive days prior to the disposition (12‑month ownership period), subject to certain life event exceptions discussed in ¶2.6.4. 2.6.3 The deeming rule applies to profits arising from the disposition of the rights to purchase a residential property in Canada via an assignment sale. Profits arising from an assignment sale are deemed to be business income if the rights to purchase a property are assigned before the end of the 12‑month ownership period. 2.6.4 A property will not be a flipped property and subsection 12(12) will not apply, where the disposition of the property can reasonably be considered to occur due to, or in anticipation of, one or more of the following life events: The death of the taxpayer or a person related to the taxpayer. One or more persons related to the taxpayer becomes a member of the taxpayer's household or the taxpayer joins a related person’s household (for example, a birth of a child, an adoption, the care of an elderly parent). The breakdown of a marriage or common-law partnership, where the taxpayer has been living separate and apart from their spouse or common-law partner because of this breakdown in the relationship for a period of at least 90 days prior to the disposition. A threat to the personal safety of the taxpayer or a related person, such as the threat of domestic violence. A taxpayer or a related person suffers from a serious disability or illness. An eligible relocation of the taxpayer or the taxpayer's spouse or common-law partner (generally this is a relocation that enables the person to carry on business, be employed or attend full-time post-secondary education). An involuntary termination of the taxpayer’s employment or the employment of the taxpayer’s spouse or common-law partner. The insolvency of the taxpayer. The expropriation or the destruction of the taxpayer’s residence (for example, due to a natural or man-made disaster). 2.6.5 A business loss incurred from the disposition of a flipped property is deemed to be nil pursuant to subsection 12(14). 2.6.6 It is possible that the deeming rule in subsection 12(12) will not apply because of one or more of the life events listed in ¶2.6.4 or because the property was owned for at least 365 consecutive days prior to its disposition. If so, it remains a question of fact whether profit from the disposition is taxed as business income. For more information on residential property flipping see the Capital Gains Guide, and the web pages Report your real estate income, or Tax effects of buying real estate to sell for a profit.
Types of property that can qualify as a principal residence
2.7 As indicated in the definition in section 54, the following types of property can qualify as a principal residence: a housing unit, which the CRA has accepted could include: a house; an apartment or unit in a duplex, apartment building or condominium; a cottage; a mobile home; a trailer; or a houseboat. a leasehold interest in a housing unit; or a share of the capital stock of a co-operative housing corporation, if such share is acquired for the sole purpose of obtaining the right to inhabit a housing unit owned by that corporation. The term co-operative housing corporation means an association, incorporated subject to the terms and conditions of the legislation governing such incorporation, and formed and operated for the purpose of providing its members with the right to inhabit, by reason of ownership of shares therein, a housing unit owned by the corporation. 2.8 Land on which a housing unit is situated can qualify as part of a principal residence, subject to certain restrictions (see ¶2.32 to 2.46).
This updated Chapter, which may be referenced as S1-F3-C2, is effective January 30, 2024.
When it was first published on March 28, 2013, this Chapter consolidated, replaced and cancelled Interpretation Bulletin IT-120R6, Principal Residence and Interpretation Bulletin IT-437R, Ownership of Property (Principal Residence).
The history of updates to this Chapter as well as any technical updates from the cancelled interpretation bulletins can be viewed in the Chapter History page.
Except as otherwise noted, all statutory references herein are references to the provisions of the Income Tax Act, R.S.C., 1985, c.1 (5th Supp.), as amended and all references to a Regulation are to the Income Tax Regulations, C.R.C., c. 945, as amended.
Links to jurisprudence are provided through CanLII.
Income tax folios are available in electronic format only.
The definition of principal residence in section 54, and paragraphs 40(2)(b) and 40(2)(c) (also sections 54.1 and 110.6; subsections 12(12) to (14), 13(7), 40(4), 40(6), 40(6.1), 40(7), 40(7.1), 45(1), 45(2), 45(3), 45(4), 107(2), 107(2.01), 107(4), 110.6(19) and 220(3.2); paragraphs 104(4)(a) and 220(3.21)(a.1); and subparagraph 40(2)(g)(iii) of t...
What is a principal residence? What type of housing unit can a principal residence be? How does a property qualify to be a principal residence? Designating a principal residence. When to designate your principal residence. When to use Forms T1255 and T2091. Disposing of your principal residence.
- How long do I need to live in a residence to claim it as a principal residence and qualify for PRE? The CRA does not specify an exact duration of time an individual or their family members, including a spouse, common-law partner or children, must reside in a dwelling for it to qualify as a principal residence for a given year.
- Can other properties, such as a cottage, be designated a principal residence and eligible for PRE? Most properties (home or cottage, for example) can be designated a principal residence—even those seasonal residences located outside of Canada, such as in the U.S. or Caribbean— as long as the owner or their family ordinarily inhabit it during each calendar year being claimed.
- Can a property that generates income be deemed a principal residence and eligible for PRE? The mandatory income tax reporting of a principal residence sale was introduced by the CRA to limit when the exemption could be applied.
- What penalties are incurred when the sale of a principal residence is not reported to the CRA? If an owner fails to report the selling of a principal residence, they could be subject to a late-filing penalty of $100 per month, up to a maximum of $8,000, according to the CRA.
According to the Income Tax Act (ITA), land that is under half a hectare (one acre) is normally considered part of the principal residence. As such, land over this amount would be excluded and would not be included in an exemption. Fortunately, a number of taxpayers challenged this rule and won one.
TaxTips.ca Resources. Canada Revenue Agency (CRA) Resources. Sale of Principal Residence Must Be Reported on the Tax Return. When a principal residence is sold, the gain is not taxable if it has been the person's principal residence for the whole time it has been owned.
In general, a resident of Canada who owns only one housing unit, which is situated on land of one-half hectare or less, and which has been used since its acquisition strictly as his or her residence, will qualify for the principal residence exemption.
