According to Canadian tax laws, individuals may only have one principal residence for tax purposes. If you have a family, they should all designate the same address as their principal residence.
A principal residence is where the individual primarily lives, and any type of home, such as a condo, apartment, trailer, or motorboat, can be a principal residence.
To designate a property as a principal residence, an individual must own the property, either solely or jointly with one or more individuals. And they must inhabit it throughout the majority of the year.
Why Do We Need to Specify a Principal Residence?
The main reason we specify a principal residence is because they are exempt from additional profit taxes when sold. For example, if you bought your house for $300,000 and decided to sell it for $600,000, the $300,000 profit would not be taxed.
Changing Your Principal Residence
Just because you can only have one principal residence does not mean you are limited to one home. However, as mentioned above, what you put as your principal residence will impact your taxes.
If at any point in the future, you decide to change principal residences and rent out the old location, you will need to file an S.45(2) Election – Changes in Use of Principal Residence.
This is because the Canada Revenue Agency (CRA) views this change as you have sold and repurchased the property at its current market value. This perceived sale, also known as “deemed disposition”, results in a capital gain. The capital gain is calculated by subtracting the adjusted cost base (usually the original price of the property) from the current market value.
You are required to report this deemed disposition on your tax return. However, if you have been residing in the property since you bought it, you may be exempt from the tax on the capital gain by claiming the Principal Residence Exemption (PRE).
Making Sense of Primary Residence Taxes
The short answer to today’s question is no, you cannot have more than one principal residence. And remember, it is possible to change your principal residence, but it will impact the taxes you owe.
If you have any other questions, contact a licensed accountant as soon as possible.
If you have any questions about this article or business taxes, in general, or you want to make an appointment with an accounting professional at Naicker & Associates, please contact us at (604) 469-9369. We are based in Port Moody, BC.
