Ref: https://solidtax.ca/wp-content/uploads/2022/09/Income-Tax-Folio-S1-F3-C2-Principal-Residence.pdf
In 2002, I bought land for $50k.
In 2005, I built a house, costing $200K, and started living there
In 2011, I sold the property for $300k.
How do I calculate the capital gain?
You can designate the property as your principal residence for the years 2005 to 2011 inclusive, but not for the years 2002 to 2004 because on one lived on the land.
The profit = $300k – $200k – $50k = $50k
The number of years that you owned the property = 2011 – 2002 + 1 = 10 years
The number of years in which the house was your principal residence = 2011 – 2005 + 1 + 1 = 8 years
The CRA recognizes that you can have two residences in the same year, that is, where one residence is sold and another purchased in the same year. Therefore, the CRA gives you an extra one year for you to designate your property as your principal residence.
The principal residence exemption = 50k x 8/10 = 40k
The capital gain = 50k -40k = 10k
The taxable capital gain = 10k x 50% = 5k, which will be added as taxable income to your income tax.
In 2000, I bought a house at a cost of $200k and lived there.
In 2003, I moved out and started renting the house.
In 2008, I moved back into the house.
In 2011, I sold the house for $500k
I don’t own any other property and would like to designate the house as my principal residence for the maximum years possible.
Do I have to pay capital gain?
From 2000 to 2003, you can designate the house as your principal residence to avoid capital gain.
From 2004 to 2007, you can designate the house as your principal residence for the 2004 to 2007 tax years inclusive (that is, the maximum of four years) by virtue of subsection 45(2) having been in force for those years, as long as you meet the following conditions:
- You do not designate another property as your principal residence from 2004 to 2007.
- You didn’t claim capital cost allowance (CCA) on the rental property from 2004 to 2007.
- You filed the election for subsection 45(2) and designate the property as your principal residence.
From 2008 to 2011, you lived in the property and can designate it as your principal residence.
Therefore, from 2000 to 2011, you can designate the house as your principal residence, so the gain was completely eliminated by it exemption. There is no taxable capital gain.
In 2003, I bought a house at a cost of $200k and rented it out.
In 2009, I moved into the house.
In 2011, I sold it for $500k.
What is the taxable capital gain?
You can designate the house as principal residence for the 2009 to 2011 tax years.
You can also designate the house as your principal residence for 2005 to 2008 inclusive (that is, the maximum 4 years) by virtue of a subsection 45(3), which you should file in your 2011 tax return if these conditions are met:
- No other property had been designated by you or a family member as it for those years.
- You did not claim any CCA when reporting the rental income and expenses.
The profit = 500k – 200k = 300k
The number of years you owed the property = 2011 – 2003 + 1 = 9 years
The number of years the house was your principal residence = 2011 – 2005 + 1 + 1= 8 years
It exemption = 300k x 8/9 =266.67k
The capital gain = 300k -266.67k = 33.33k
The taxable capital gain = 33.33k x 50% = 16.67k, which will be added as taxable income in your income tax.
