Many Canadians own a principal residence, but the tax implications of transactions involving principal residences are not always well known or fully understood. This course examines all aspects of principal residences from a federal tax perspective, including unusual situations and the unexpected issues or outcomes that can arise in such cases.

Accountants are often surprised to discover how complex the tax rules affecting principal residences are. Many of these complexities arise when a portion of the home is used to earn income (rented out or used in a business). Complications can also arise where the property is larger than half a hectare or when the owner moves out of the property for work or to live in a care home. Where an individual owns more than one home (such as a summer cottage), the decision to designate one property over another may result in a materially different tax outcome.

This course examines the requirements for a property to undergo classification as a principal residence as well as the concepts of ownership and bare trustees, the ordinarily inhabited requirement, and the placement of housing units on multiple or large properties. Other topics include income earned from a principal residence, the concept of incidental income, change-in-use rules, and partial dispositions or residences held through trusts.

Topics Include:

• Principal residences and capital property, including the doctrine of secondary intention and implications for house flippers.
• The definition of a housing unit, including trailers and houseboats.
• Property owners, including bare trustees.
• Conditions that meet the ordinarily inhabited rule, including situations where taxpayers have moved into care facilities.
• The designation of a property as a principal residence and the mechanics of the principal residence formula.
• Properties used to earn income and the concept of incidental income.
• Housing units on multiple properties and properties in excess of one-half hectare.
• Partial dispositions of a property, including prior subdivisions.
• The change-in-use rules, elections to avoid these rules, and implications of filing elections.
• Residences held through trusts and the impact of the October 2016 legislative amendments.
• The impact of separation and divorce on the principal residence exemption.

NOTE: This course description has been revised and reflects updates for 2024. If you have any questions, please contact pdevents@cpaontario.ca.

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By the end of this course, participants will be able to:

• Apply the mechanics of the principal residence deduction (including the components of the formula and the year-by-year designation).
• Apply the definition of the term "principal residence" including the terms like "housing unit" and "ordinarily inhabit."
• Identify the impact of the change in use rules on residences (including partial changes in use).
• Understand the implications when only a portion of a property qualifies as a principal residence (including large acreages and properties used to earn income).
• Interpret the rules when a residence is owned by a trust and the October 2016 amendments in this area.