What’s Your Tax Issue? – Principal Residence Exemption Form

The Tax Issue:

I sold my home in 2009 and I want to claim the exemption for a principal residence. If the full amount is exempt, must I fill out and file the designation form?

The Answer:

You’d be shocked at how often I get this question during tax time – that’s twice today so far! Let’s put it to rest once and for all. Briefly, the exemption provides relief from any tax on a gain on the sale of property if it was designated as your principal residence. First, your gain is calculated. Then you must determine the number of years that you occupied the property and wish to designate it as your principal residence.

In some cases, with multiple properties, it can get complicated, but in the simplest case, where you have sold your home and it was your only residence, then you will be designating all the years you owned the property, and your gain will be fully exempt.

In such a case, even though the law technically states that you must file a designation form T2091 to calculate the exemption, the CRA has stated that you don’t have to report the disposition and you don’t need to file the form as long as the full gain is exempt, and you did not make a capital gains exemption election on the property in 1994 (that’s a whole other blog – don’t ask 🙂 ). If you want to be super cautious, though, I would still file the form, because the CRA has been known to renege on their administrative concessions from time to time.

If you live in Quebec, although you don’t have to report a fully exempt sale of a principal residence on your tax return, you must still complete and file form TP-274 with your income tax return.  No administrative concession is given here.