CostThe principal residence exemption shelters gains on your home from capital gains tax for the years it was genuinely your principal residence — but only one property per family unit can be designated per year, a change in use can trigger a deemed disposition, and land beyond roughly half a hectare may not fully qualify.
How much is actually exempt
The exemption shelters your capital gain proportionally to the number of years the property was designated as your principal residence out of your total years of ownership — it isn't automatically 100% exempt regardless of history. A family unit (you, your spouse, and minor children) can generally only designate one property as their principal residence for any given year, which matters if you or your spouse separately own more than one property.
Ways you can lose part of the exemption
- Owning a second property at the same time — only one property per family unit can be the designated principal residence for a given year, so a cottage or second home held simultaneously affects the calculation.
- Land exceeding roughly half a hectare — the exemption is generally limited to the home plus up to about half a hectare of land, unless you can demonstrate more was genuinely necessary for the property's use, which is a real evidentiary bar.
- A change in use — converting the home to a rental (or vice versa) can trigger a deemed disposition; see our full explainer on moving into a rental or renting out your home.
The change-in-use trap, briefly
If a property was a rental for part of your ownership and your principal residence for the rest, the exemption only applies proportionally to the principal-residence years — precise dates and proper designation matter enormously to getting this calculation right when you eventually sell. This is genuinely an area worth involving an accountant in before, not after, a change in how a property is used.
See your potential exposure if the full exemption doesn't apply using the capital gains calculator.