The Principal Residence Exemption – Some Quirks

Volume No. 19-11

Author: Marco Jotic CPA, CGA
Editors: Peter Weissman  FCPA, FCA, TEP and Matthew Cho CPA, CA, TEP

The principal residence exemption allows Canadians to reduce or eliminate Canadian income tax on gains resulting from the disposition of a home or vacation property a Canadian “ordinarily inhabits”.  Eligibility for the exemption is being scrutinized more than in the past, by the CRA.   

The following is a brief discussion of two situations that could lead to unexpected consequences (both good and bad).

Portion of Property Qualifies as Principal Residence

The fact that a property has multiple uses may or may not affect its eligibility for the Principal Residence exemption.  Duplexes are a good example.

In CRA Views in Focus, Conference, 2016-0625141C6 – Principal Residence-Duplex, the CRA was asked whether a duplex, where one unit was occupied by the owner and the other occupied by her parents, would be considered a principal residence.  The two units were completely independent of each other with distinct addresses and separate hydro meters.  The CRA concluded that each unit was a separate housing unit and only the unit occupied/”ordinarily inhabited” by the daughter qualified as her principal residence. 

The parents were not able to use their principal residence exemption on the unit they lived in as they were not owners or co-owners of the duplex. The daughter did not have the ability to use her exemption on the unit occupied by her parents because she did not ordinarily inhabit that particular housing unit. 

If the daughter and her parents required access to the entire property the conclusion might be different.  In CRA Views in Focus, 2012-0445241E5 – Principal Residence, the CRA commented that where units of a duplex are integrated in a manner where access to one is a condition to the full enjoyment of the other, the units will be considered a single dwelling. 

Renting to a Child

In CRA Views in Focus, 2015-0567791I7 – Exemption re: principal residence leased to a child, a taxpayer was able to designate a property he owned as his principal residence while it was rented to his child.  This position was reiterated in CRA Views in Focus, Conference, 2016-0625161C6 – Principal Residence Rented by Child, where CRA was asked if a taxpayer can designate a property he owns as his principal residence even if it is being rented to his adult child at below fair market value.  The CRA concluded that the taxpayer would be able to designate this property as his principal residence during such time.

The CRA came to this conclusion because, provided all other conditions are met, a property can be a principal residence if it is ordinarily inhabited by the taxpayer, his/her spouse or former spouse, or by his/her child.  Parents are not included in the list and therefore, the daughter was not able to claim the exemption on the unit occupied by her parents in the duplex situation discussed above. 

While the principal residence exemption is a common topic of discussion amongst taxpayers and advisors, there are still many small quirks that are known to few.  If you have situations involving special cases dealing with the principal residence exemption, a Cadesky Tax representative would be happy to assist you.


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The material provided in Tax Tip is believed to be accurate and reliable as of the date of posting. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Cadesky Tax cannot accept any liability for the tax consequences that may result from acting based on the contents hereof.