Principal residence exception

[Manhattan]

Been reading and hearing a lot of different interpretations of this rule. Took a quick look at the CRA website and couldn't find anything definitive. I have read/heard:

- you can live in the residence for just a few days before selling and designate it as your principal residence and avoid capital gains tax

- you must live in your principal residence for 6 months in the year of sale and avoid the capital gains tax

- there's a formula to the amount of taxable capital gains: [(number of years used as principal residence+1)/number of years owned] * capital gains on sale. multiply that by 1/2 and that's your taxable capital gain


So what is the rule exactly? Have the rule changed recently?

[skandalouz_08]

What's the purpose of the purchase. If you are buying and selling multiple homes throughout the year and living in them for 1 day at a time then you'll have to pay the capital gains. If you do it once or twice a year you can typically fly under the radar but not worth it in my opinion if you get caught trying to do that.

Just from having friends and some of my clients who do this their rule is that if you are doing more than 1 buy and sell in a year you'll have to claim it but that's just my thoughts, not sure what the CRA ruling is.

[Manhattan]

This is just 1 sell for sure. I'm trying to weigh my options between keeping the property or selling it. Would I need to live in it again for 6 months to avoid the capital gains tax or does it even matter if it's just going to be prorated for how long I've lived there?

[Zero102]

If the house was used as a rental property and you want to convert it to your principal residence then you will pay capital gains on any increase in value between when it was designated a rental property and when it is designated your primary residence.

[Manhattan]

^ How and who calculates those estimates? Let's say the property was designated a rental 3 years ago, would I be looking at historical prices as an estimate?

[skandalouz_08]

Originally posted by Manhattan
^ How and who calculates those estimates? Let's say the property was designated a rental 3 years ago, would I be looking at historical prices as an estimate?

You could have a realtor pull comparable sales from the time period when you designated it a rental and do the same for when you make it your principal residence. You would only pay tax on the gains for that time period.

If you are planning on taking it from a rental to principal to sell it and be selling your principal residence to get away with not paying taxes then that isn't possible.

[Tik-Tok]

Originally posted by skandalouz_08

If you are planning on taking it from a rental to principal to sell it and be selling your principal residence to get away with not paying taxes then that isn't possible.

It's completely possible... unless you get audited

[Zero102]

Originally posted by Manhattan
^ How and who calculates those estimates? Let's say the property was designated a rental 3 years ago, would I be looking at historical prices as an estimate?

You do. The onus is on you to have done this properly when you established the property as a rental / income property.

I've heard of people using the city assessment value for the year when the property's use was changed (i.e. 2010 and 2013 from what you have said). Not sure if that is the standard practice or not.

[skandalouz_08]

Originally posted by Tik-Tok


It's completely possible... unless you get audited

LOL, yes, poor wording on my part. It is possible but not recommended if you don't want to get audited.