When selling a home, Canadians may be exempted from paying capital gains tax on a residential property if it is determined to be their principal residence. A capital gains tax is normally applied to 50% of your profits made from selling an asset for a profit.

However, the CRA is a bit vague when defining one’s principal residence, and several factors could either help or prevent you from qualifying for the principal residence tax exemption.

Below, I’ll explain more about how the CRA determines principal residence and answer some questions about what types of properties may be eligible for the tax exemption.

THE PRINCIPAL RESIDENCE TAX EXEMPTION

The CRA requires all taxpayers to claim any capital gains on properties sold on their taxes each year.

However, the CRA makes an exception to this rule for properties that qualify as your principal residence.

If your home qualifies for the principal residence tax exemption, you won’t be required to pay capital gains tax on the profits realized from selling the property.

Over the past few years, the CRA has become stricter about verifying principal residence exemption claims. So, it’s important to understand how this tax exemption works before you claim it.

The CRA imposes capital gains taxes on real estate investors attempting to profit from the sale of a property. Some examples of this could include:

•  House flippers (people who buy a property, fix it up, and sell it for more than they purchased it for)
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•  Those who purchase a property to rent it out to tenants, then eventually sell it
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