Selling your home is a sizable life event and many of our past clients have been curious to know what implications there are when selling.  In Canada, if you are selling your primary home, then the sale doesn't affect your taxable income. 

However secondary homes such as vacation homes and investment/rental homes are a different story.  

The Principal Residence Exemption (PRE)

The home in which you reside and live in, provides a natural tax shelter according to the Canadian law, as long as your home qualifies.  To qualify as your principal residence, you must own the home and commonly live there. In some cases, though, you may be allowed to choose a vacation home as your principal residence.  This is only possible if you use the vacation home for your own vacations and not as a rental home that produces income.  

There are also stipulations to the amount of land on which the home sits.  It the land lot exceeds one-half hectare, you may be required to prove that the remainder of the lot is used and needed for the enjoyment of the property.  Local zoning also may exempt you from the one-half hectare requirement. In the sale of a property that qualifies for the PRE, any capital gain or loss is exempt from income tax claim or deduction.

When the PRE Doesn't Apply

Homes that you own exclusively for rental income purposes don't qualify for the PRE. Renting space in your principal residence may also disqualify the home.  However, for that to happen you must typically rent more than 50 percent of your home.

Renting a room or your basement likely will not disqualify your home, unless you decide to claim depreciation on the rented portion. If less than 50 percent of your home is rented, you should not encounter any issues, however if you claim the PRE and a capital cost allowance, that may trigger a CRA review.

If you own a multi-unit dwelling such as duplex, triplexes and fourplexes, the exemption won't apply even if you choose to reside there.

Selling an Investment Home

When you sell a home that doesn't qualify for the PRE, claiming capital gains or losses becomes available to you. To determine the taxable capital gain, multiply the capital gain by the year’s inclusion rate (the rate for 2015 is  50%*). 

When you sell a multi-dwelling unit home, such as a duplex, in which you lived in one unit and rented the other, you can still qualify for the PRE on a portion of the building.  Therefore capital gains only apply to the rental portion of the duplex.

For example, if a duplex sold for $100,000 more than the purchase price, and the owner lived in one unit for the entire time of ownership, $50,000 of the amount is protected by the PRE.  Therefore the $50,000 capital gain is claimed on the owner's tax return.

Moving Expenses

Moving expenses can be claimed when you sell your house, but only when your move meets certain requirements.

If you're moving to be nearer to your place of employment, to run a business or for full-time, post-secondary study, and the move brings you at least 40 kilometres closer to your school or workplace, your moving costs are eligible for deduction.

Moving and storage fees can be claimed, whether you use a rental truck company or hire a mover. Meals and hotel charges accumulated during your move qualify, as do the costs of selling your home.

*Sourced By the CRA 

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