When you sell your home in Canada, any capital gain is usually tax-free under the Principal Residence Exemption (PRE). This is one of the most valuable tax benefits available to Canadians. However, rules have tightened in recent years, and the new anti-flipping rules introduced in 2023 mean that not every home sale is automatically tax-free. Here's everything you need to know.
The PRE allows a Canadian taxpayer to designate a property as their principal residence for any year they ordinarily inhabit it. For each year designated, the gain on sale is prorated and eliminated. A property can be your principal residence for a year even if you live there for only a portion of the year — a family cottage, vacation property, or city condo can all qualify in different years.
Key rules:
Since January 1, 2023, properties sold within 365 days of purchase are deemed to be flipped and the gain is treated as business income (100% taxable), not a capital gain, and the PRE cannot be claimed.
Exceptions to the anti-flipping rule include:
You may only be able to claim a partial exemption if:
In these cases, the gain must be apportioned between taxable and exempt portions.
Since 2016, you must report the sale of your principal residence on your annual T1 income tax return using Schedule 3. You must report the year of acquisition, proceeds, and description of the property. Failure to report can result in penalties and loss of the exemption.
Non-residents of Canada cannot claim the PRE. Non-residents selling Canadian property must notify the CRA (Form T2062) within 10 days of closing, and the purchaser must withhold 25–50% of the sale price. Non-residents are taxed on Canadian real estate gains under the Income Tax Act and may also face departure tax when emigrating.
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