Definition
The principal residence exemption (PRE) is one of the most important tax benefits in Canada. It allows elimination (in whole or in part) of capital gains tax on the sale of the principal residence.
Exemption calculation formula: (Designated years + 1) ÷ Total years of ownership × Total gain
Important rules: - **One property per family**: in Canada, a family (couple + minor children) can only designate one property as principal residence per calendar year - **Mandatory declaration**: since 2016, the sale of a principal residence must be declared to CRA (Form T2091), even if the gain is fully exempt - **Qualification**: the property must have been inhabited at some point during the year by the taxpayer, their spouse, or a child - **Cottage or secondary residence**: can be designated principal residence for years it was inhabited — at the cost of not designating the main home for those same years
**Anti-flip**: the exemption does not apply to sales within 12 months of purchase.