The principal residence exemption (PRE) allows Canadian homeowners to sell their primary residence without paying capital gains tax on the profit. However, if your property is a rental property, this CRA rule may apply to you only for years when you actually lived in it as your principal residence, not for years you rented it out. The exemption cannot cover both the principal residence years and the rental years simultaneously for the same property. The principal residence exemption is one of the most valuable tax benefits available to Canadian property owners. When you sell your principal residence, you typically don't owe tax on the profit you make. This applies whether you sell for $100,000 more than you paid or $1,000,000 more. For this CRA rule to apply to you, the property must have been your principal residence for the year in question. That means you owned it and lived in it as your main home. You don't need to own it for the entire calendar year, but it must be your principal residence for at least part of the year you're claiming.
Yes, but only for the years you actually lived in it as your principal residence. Any capital gain that occurs during years you rented it out is taxable and does not qualify for the exemption. You must split your total capital gain between principal residence years and rental years.
If you lived in the property as your principal residence for one year and rented it for nine years, then only one-tenth of your capital gain would qualify for the exemption. The other nine-tenths would be taxable.
Yes. Form T776 reports your rental income and expenses for the years you rented the property. You must file this form separately from claiming the principal residence exemption on Schedule 3 of your tax return.
You cannot retroactively claim years you did not live in the property as principal residence years. However, you can designate the property on your tax return or in correspondence with the CRA for eligible years where it actually was your principal residence.
The exemption does not affect rental income tax at all. All rental income you earned during the years you rented the property is fully taxable. The exemption only applies to the capital gain when you sell the property.