This article will continue to discuss the principal residence exemption, which can eliminate or reduce a capital gain on the disposition of the principial residence.
You can download the CRA tax guide below.
https://solidtax.ca/wp-content/uploads/2022/09/Income-Tax-Folio-S1-F3-C2-Principal-Residence.pdf
A principal residence is the primary location that a person lives. It is also referred to as a primary residence or main residence.
If I owned my home that I have rented it out for certain years; am I still exempt from paying capital gains? If I must pay capital gains, how does it work?
If you have rented out your home for certain years, whether it’s your own primary residence or not, you are not exempt from paying capital gains. However, there is one exception which depends on when the home was purchased and your residential status during the year, you may be completely exempt from capital gains. The following is an example of the one plus rule where taxes on capital gains are exempt:
Mary is a residence of Canada and put her principal residence for sale in January 2021. This property has been Mary’s ONLY principal residence for all the time she has owned it. She purchased a new house in February 2021 and took possession of it as his principal residence in March 2021. In this case, the special rule called the “plus 1” rule allows Mary to treat both properties as eligible for the principal residence exemption for a year where one residence is sold and another is purchased in the same year, even though only one of them may be designated as a primary residence for that year.
To summarize, if you rented out your primary residence for ONE year and still maintained as a resident of Canada throughout the year, then there you will be tax exempt from capital gains on selling that property.
In the case where you rented out your primary residence for more than one year, or if you do not qualify for the plus 1 rule, then you will need to pay taxes on the capital gain based on the years the home was rented out for.
I started renting out my principal residence; do I have to pay capital gains right now?
Whenever you change the purpose of your property, whether it’s from principal residence to rental property, or vice versa, CRA considers it to be a deemed disposition, meaning that even if you did not actually sell your property, you must treat it as if you actually sold the property. However, you can defer the taxes on the capital gains until you actually sell it.
I have partial ownership of a house with family members that is rented out, then I sold my share of the house. What do I do?
When you have partial ownership of a house with family members the house must be appraised at the time when the ownership has been transferred because the capital gains on selling the share of the property must be taxed at the fair market value.
