Income Tax FolioS1-F3-C2: Principal Residence
Series 1: Individuals
Folio 3: Family Unit Issues
Chapter 2: Principal Residence
The Canada Revenue Agency (CRA) issues income tax folios to provide technical interpretations and positions regarding certain provisions contained in income tax law. Due to their technical nature, folios are used primarily by tax specialists and other individuals who have an interest in tax matters. While the comments in a particular paragraph in a folio may relate to provisions of the law in force at the time they were made, such comments are not a substitute for the law. The reader should, therefore, consider such comments in light of the relevant provisions of the law in force for the particular tax year being considered.Application
This Chapter, which may be referenced as S1-F3-C2, is effective April 9, 2014 and consolidates, replaces and cancels Interpretation Bulletin IT–120R6, Principal Residence and Interpretation Bulletin IT–437R, Ownership of Property (Principal Residence).
The history of updates to this Chapter as well as any technical updates from the related interpretation bulletins can be viewed in the Chapter History page.
Except as otherwise noted, all statutory references herein are references to the provisions of the Income Tax Act, R.S.C., 1985, c.1 (5th Supp.), as amended and all references to a Regulation are to the Income Tax Regulations, C.R.C., c. 945, as amended and as promulgated under the Act.
Links to jurisprudence are provided through CanLII.Reference
The definition of principal residence in section 54, and paragraphs 40(2)(b) and 40(2)(c) (also sections 54.1 and 110.6; subsections 13(7), 40(4), 40(6), 40(7), 40(7.1), 45(1), 45(2), 45(3), 45(4), 107(2), 107(2.01), 107(4), 110.6(19) and 220(3.2); paragraph 104(4)(a); and subparagraph 40(2)(g)(iii) of the Act; and Part XXIII of the Regulations.)Summary
This chapter discusses the principal residence exemption, which can eliminate or reduce (for income tax purposes) a capital gain on the disposition of a taxpayer’s principal residence.
In order for a property to qualify for designation as the taxpayer’s principal residence, he or she must own the property. Joint ownership with another person qualifies for this purpose.
The housing unit representing the taxpayer’s principal residence generally must be inhabited by the taxpayer or by his or her spouse or common–law partner, former spouse or common–law partner, or child. A taxpayer can designate only one property as his or her principal residence for a particular tax year. Furthermore, for a tax year that is after the 1981 year, only one property per family unit can be designated as a principal residence.
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