Do I have to report the sale of my home if it is exempt?

Yes. Even when the gain is fully exempt, you must report the sale and designate the property as your principal residence on your tax return to claim the exemption properly.

What if my home was a rental for some years?

The exemption is prorated for the years it qualified as your principal residence. Any gain attributable to the years it was a rental is generally taxed as a capital gain under the usual rules.

Mortgage Glossary

What is Principal Residence Exemption?

Q: Can I claim the exemption on a cottage?

Possibly. A cottage can qualify if it was ordinarily inhabited, but only one property per family unit can be designated as the principal residence per year, so you must choose which property to shelter.

The principal residence exemption is a Canadian tax rule that lets you avoid capital gains tax on the increase in value of your main home when you sell it. As long as the property qualifies as your principal residence for the years you owned it, the gain is generally fully exempt. It is one of the most valuable tax breaks available to Canadian homeowners.

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Quick answer

Also known as: PRE, primary residence exemption

Key points

Exempts the capital gain on a qualifying principal residence from tax.
Only one property per family unit can be designated for any given year.
The exemption is prorated if the home was your principal residence for only some years.
Even fully exempt sales of your home must be reported on your tax return.
Owners of a home and a cottage must choose which to designate each year.
The preserved gain often becomes the down payment on your next purchase.

Principal Residence Exemption explained

The principal residence exemption (PRE) shelters the capital gain on a home that you, your spouse or common-law partner, or your children ordinarily inhabited during the years you owned it. When the property qualifies as your principal residence for every year of ownership, the entire gain is generally exempt from tax. Only one property per family unit can be designated as the principal residence for any given year.

The exemption is claimed when you report the sale on your tax return; even fully exempt sales of a principal residence must be reported. If a home was your principal residence for only some years, the exemption is prorated, and the remaining gain is treated as a taxable capital gain under the usual rules.

What a Principal Residence Exemption is for

The exemption exists so that the growth in value of the home you actually live in is not eroded by tax when you sell and move. It supports home ownership and mobility by letting families upgrade, downsize, or relocate without a tax penalty on their main home. It is the main reason most Canadians pay no tax on the profit from selling the house they live in.

How it can help you

Understanding the exemption helps you keep more of your equity when you sell and plan which property to designate if you own more than one. That preserved equity often becomes the down payment on your next home. Lenderoo shops 40+ lenders for free, so when you roll your tax-free gain into a new purchase you can compare mortgage options and keep your borrowing costs low.

When it comes up

The exemption comes into play when you sell the family home after years of price growth. Because the gain is generally fully exempt, you keep the full profit to put toward your next property. It also matters for families with a city home and a cottage, who must decide each year which property to designate to minimize overall tax.

Example: Selling your family home

Suppose you bought your home for $500,000 and sell it years later for $800,000, a gain of $300,000.

If the property was your principal residence for every year you owned it, the principal residence exemption generally shelters the entire $300,000 gain, so you owe no capital gains tax. You still report the sale on your tax return, but you keep the full profit, which you can put toward your next home. If it had been your principal residence for only part of the time, the exemption would be prorated.

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Questions & answers

Principal Residence Exemption: frequently asked questions

Common questions Canadians ask about principal residence exemption.

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