What You Need to Know about the Principle Residence Exemption (PRE)

CRA is looking for people taking advantage of the PRE rules in order to avoid paying tax.  

What would CRA be looking for?
  • CRA is looking for quick “house flips” that do not qualify for the PRE. Short holding periods of less than year would fit the criteria.
  • Houses that are not lived in.
  • Any serial builders who build, occupy, and sell over and over again. Technically this is inventory.
What are the rules?
  • Be sure to designate one property per year.
  • You must inhabit the home.
  • You can choose to designate a second home or cottage as PRE. We would recommend designating the one with the highest gain.
  • You cannot earn income on PRE.
  • There are land restrictions to consider. Anything exceeding 1.2 acres would be outside the PRE
  • The property doesn’t have to be in Canada, you have the ability to designate a foreign property.  
What are the repercussions?
  • Interest on taxes owed and penalties for not reporting. Maximum $8,000.00 or $100.00 per month for each month the sale was not reported.

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