How long do I have to own my home for it to be a principal residence (PR)?
This is a question that I have frequently had in the last number of years since the CRA started requiring disclosure of PR sales on returns in 2016.
The fact is, the length of time is not defined in the Income Tax Act and is dependent on the totality of the overall taxpayer situation. For example, the length of time you have owned the home, the nature of your employment or business interests, and other factors, like family situations.
For example, in Hansen v. The Queen, the taxpayer had bought and sold homes in 2007, 2008, 2009, 2011, and 2012, to which he claimed the principal residence exemption on all of them. The CRA argued that he was in the business of buying and selling homes and as such the income was business and not capital gains exempt by way of the principal residence exemption. Because the CRA could not prove that the taxpayer made false claims the 2007 to 2009 claims were dismissed as statute-barred (beyond the 3-year period), but they took the view that the latter homes were bought and sold for the primary purpose of profit, and not primarily as a principal residence, therefore the principal residence exemption was denied.
Now in another example, if a couple were to buy a 2-bedroom home for themselves and one child and within a year gave birth to twins, and therefore, due to family circumstances, needed to upgrade to a larger home, then this would be likely be seen as a valid reason to upgrade, and the principal residence exemption would still apply, despite not living in the home for one year, as many people believe is the de facto standard.
These are only two of many situations that arise when determining whether you are able to claim a principal residence exemption or not, so it is prudent to get proper advice, as the penalties can be astronomical for failure to properly disclose these sales on your tax return.
If you would like to discuss your circumstances, we are here to help with these situations and would be happy to consult on your individual circumstances.
With 20 years and counting of industry experience working in the field of accounting and taxation, Shawn P. Stemmler brings a depth of knowledge in government legislation including the Income Tax Act, Excise Tax Act, Employment Standards Act, and more to the table when serving our clients.
Shawn’s addition to the Premier Professional Accountants team in 2021 has been a welcomed addition for our clients. He’s quickly put his tax compliance knowledge to great use in helping clients navigate relationships with his existing client base and the clients of Premier Professional Accountants Inc.