New rules for principal residence exemption

A seasonal residence, such as a cottage, cabin, lake house or even ski chalet can be considered to be “ordinarily inhabited in the year” even if you only use it during vacation periods “provided that the main reason for owning the property is not to gain or produce income.”
As part of the new measures introduced by Finance Minister Bill Morneau this week to, among other things, “improve tax fairness for Canadian homeowners,” the government announced its intention to close “loopholes surrounding the capital gains tax exemption on the sale of a principal residence.”
The principal residence exemption (PRE) provides Canadians with an exemption from tax on the capital gain realised when you sell the property that you have designated as your principal residence.
Under the Income Tax Act, in order for a property to qualify as your principal residence for a particular tax year, four criteria must be satisfied: The property must be a housing unit; you must own the property (either alone or jointly with someone else); you or your spouse or kids must “ordinarily inhabit” the property; and you must “designate” the property as a principal residence. Note that a seasonal residence, such as a cottage, cabin, lake house or even ski chalet can be considered to be “ordinarily inhabited in the year” even if you only use it during vacation periods “provided that the main reason for owning the property is not to gain or produce income.”

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