11 November 2021

Do I have to pay capital gains tax if I sell my house before living there one year?

Do I have to pay capital gains tax if I sell my house before living there one year?

If you’ve sold Real Estate recently you’ll need to make sure you report it on your upcoming taxes. If the property you sold was your principal residence, you won’t have to pay capital gains tax on it as you will be exempt based on the Principal residence exemption (PRE).  What defines principal residence? You can have one principal residence a year that you must have generally lived in over the year. Many people think you have to live in your principal residence for a full year to avoid paying capital gains tax, this is not true and there is no set time frame for which you must occupy the residence. It’s called the ordinary inhabited rule.

Now, if you’ve been buying properties and flipping them every year all while claiming the principal residence exemption, you might have something to be concerned about. An article by the Financial Post talks about how a couple bought and sold real estate in 5 consecutive years. In each case they made improvements to the home and sold them for a significant profit. They were found guilty of not properly using the PRE. You can read about it here.

For someone who has decided to sell for personal reasons, employment change, or simply wanted to rent, you don’t need to worry about this. However, if you frequently buy and sell real estate while claiming the PRE, it’s possible that the CRA could question your motives. 

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*This is for educational purposes only and should not be taking as tax or financial advise, talk to an accountant.