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Principal Residence Exemption

Subject: Principal Residence Exemption Number: 09-07 Date: 3/13/2009

If you own more than one property, keeping track of expenses may help in determining which property to claim as the principal property

The principal residence exemption is one of the major tax savings mechanisms available to Canadians. Taxpayers may have more than one principal residence (including domestic and foreign vacation homes), but the exemption is generally only available on one principal residence.

It is not always better to claim the exemption on the first property to be sold as a second property may have a greater potential gain that could be sheltered. However, it is human nature to want to avoid paying tax now, even though the savings from using the exemption later on the second property, may be greater.

This decision can be more palatable if the full cost (“ACB”) of both properties is captured. Expenses such as re-roofing the property, installing central air conditioning or a new furnace, landscaping and renovations all increase the ACB of a property and reduce the potential capital gain on a sale.

Keeping track of these expenses is easy and can result in significant tax savings by reducing the capital gain on sale and by allowing an accurate determination of which property to claim as a principal residence.

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The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.