Canada: Proposed Changes To Canada's Principal Residence Claim

What is Principal Residence Exemption?

The sale of a capital property for an amount greater than its cost generally leads to a capital gain, 50 percent of which is taxable in Canada. If the property is the seller's principal residence, the gain resulting from the disposition can be sheltered by the principal residence exemption ("PRE"). Only taxpayers who are individuals or certain trusts are eligible to claim the PRE.

In order to qualify as a principal residence, the property must meet certain conditions. Generally speaking, the property must be owned and ordinarily inhabited by a Canadian resident individual or certain trust in the year. Only one property can be designated as the taxpayer's principal residence in any given year.

New Proposed Measures

On October 3, 2016, the Department of Finance ("the Department") released new income tax legislation, as well as non-tax measures to protect "the financial security of Canadians, supporting the long-term stability of the housing market and improving the integrity and fairness of the tax system, including ensuring that the principal residence exemption is available only in appropriate cases."

The following is a summary of the new tax measures introduced by the Department to limit or altogether restrict, the use of the PRE as well as to mandate additional disclosure of property dispositions.

1. Non-Resident Individuals:

For a property to qualify as a principal residence for a particular year, the individual owner must have been a resident of Canada during that year. The individual can have two residences in the same year, for example, when a property is sold and another is purchased in the same year. The existing PRE formula is structured to provide relief in this situation, as it provides one extra year of exemption via the "plus one" portion. This means that an individual can benefit from the exemption for the year he/she purchases a residence in Canada, even though he/she was a non-resident in the year of acquisition.

Under the new measures, for dispositions of property after October 2, 2016, a taxpayer must be a resident of Canada throughout the year in which the principal residence was acquired. If the individual is a non-resident in the year of acquisition, he/she will not be eligible for the extra year in calculating the PRE.

2. Trusts:

The current tax legislation allows a personal trust to claim a PRE in respect of a property for a particular taxation year as long as one of the beneficiaries thereof ordinarily inhabited the property in the year.

The proposed measures limit the types of trusts that can claim the PRE in relation to a property for taxation years beginning after 2016. The trusts that may, under the new rules claim the PRE, include alter ego, spousal or common-law partner, joint spousal common-law partner, qualified disability trusts, and trusts for minor children of a deceased parent. The new rules are introduced with the intention of aligning the eligibility of a trust to claim the PRE with that in respect of property that is held directly by an individual.

Transitional rules which have been introduced to enable trusts that are no longer eligible to claim the PRE because they don't meet the new conditions, can crystallize the PRE in respect of any accrued gain in the principal residence property up to December 31, 2016. These rules effectively deem the trust to have disposed of the property on December 31, 2016 for its fair market value and reacquired it on January 1, 2017 at a cost equal to the fair market value.

3. Requirement to report the disposition and designate the principal residence:

Based on the proposed measures, an individual seller would be required to report the information related to the sale (or deemed sale) of the principal residence on his or her income tax and benefit return. The reporting is required for all principal residence dispositions that occur on or after January 1, 2016.

Previously, it was the CRA's administrative policy to not require an individual taxpayer to report the information related to the disposition of a principal residence on the individual's income tax and benefit return in situations where the PRE eliminates the entire gain. However, this exception did not extend to trusts.

Where the PRE did not shelter the entire gain from the disposition of a principal residence because the property was not individual's principal residence throughout the entire ownership period, Form T2091, Designation of a Property as Principal Residence by an Individual, is required. Under the new measures, Form T2091 will be required for all principal residence dispositions, whether or not any part of the gain is sheltered by the PRE.

CRA will accept late-filed principal residence designations in the year the property is sold, but the taxpayer could be subject to a penalty of up to $8,000.

4. Extension of the reassessment periods:

The disposition of a property for which a PRE claim is made must, under the new measures, be reported in the taxpayer's tax return. If the taxpayer does not report the disposition, the proposed measures would allow the CRA to reassess the tax in connection with the unreported disposition of the property beyond the normal reassessment period.

In most cases, the normal reassessment period for an individual is three years after the CRA's mailing date of the original notice of assessment for a particular year.


These proposed measures appear to be aimed at stabilizing the Canadian housing market, while increasing tax revenues by restricting access to the PRE. These measures have implications for many taxpayers, not simply non-residents of Canada.

Canadian resident taxpayers must, under the new measures, report the sale of their principal residence whether or not the gain is sheltered by the PRE. Failure to report the information related to the sale could expose taxpayers to the risk that CRA may reassess their tax returns beyond the normal reassessment period.

Lastly, a number of personal trusts (including family trusts) that hold a property that is the principal residence of one or more beneficiaries, will no longer be eligible to claim the PRE. The trustees of such trusts will have to rely on the proposed transitional rules to ensure that any gain accrued to the end of 2016 is sheltered. The trustees may wish to consider whether the property should be held in the trust, or if it should be distributed to one of the beneficiaries on a tax-deferred basis. The beneficiary may then be able to claim the PRE on a future sale to the extent the property qualifies for the beneficiary. It is important to review the planning strategy for these trusts.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Practice Guides
by Mondaq Advice Centres
Relevancy Powered by MondaqAI
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions