Overview
This ruling explains how the Principal Residence Exemption (PRE) applies when an individual is not a resident of Canada for all or part of the time they own a Canadian property. CRA clarifies that while a home may still qualify as a principal residence in some years, the exemption itself is largely restricted to years of Canadian residency.
The CRA also discusses:
whether a non-resident can designate a Canadian property as a principal residence
the “ordinarily inhabited” test
the impact of children living in the property
the subsection 45(2) election for change in use
the four-year rule and relocation exception
how capital gains are calculated for non-residents
1. Principal Residence Rules for Non-Residents
(Relevant: ITA 54, 40(2)(b))
A Canadian property may be considered a principal residence if it is:
-
owned by the taxpayer, and
-
ordinarily inhabited by the taxpayer, their spouse/partner, or their child.
However, CRA confirms:
A non-resident generally cannot claim the Principal Residence Exemption
Even if the home qualifies as a principal residence, the PRE can only be applied for taxation years in which the individual was resident in Canada.
Under paragraph 40(2)(b):
-
Only years after acquisition in which the owner was resident in Canada can be used in the PRE formula.
-
Years of full non-residency cannot be counted toward exempting the capital gain.
Result:
A non-resident typically cannot eliminate the gain upon sale using the PRE.
2. “Ordinarily Inhabited” Test
(Relevant: ITA 54; CRA IT-120R6)
A property may still be ordinarily inhabited, even if:
-
a child of the taxpayer occupies the home,
-
occupation occurs for part of the year,
-
the owner does not personally live there.
CRA confirms that short periods can still satisfy “ordinarily inhabited.”
However:
Even if the property qualifies as a principal residence,
the PRE is still limited to Canadian-resident years.
3. Children Living in the Property
(Relevant: ITA 54 definition of “child”)
A home may qualify as a principal residence in a year if it was:
-
inhabited by the taxpayer’s child who is
-
a legal child,
-
step-child,
-
dependent child, or
-
spouse of a child.
-
Therefore, a non-resident with a child studying in Canada can meet the “ordinarily inhabited” requirement.
However:
✔ “Ordinarily inhabited” does NOT create PRE entitlement
The PRE can still only be used for years the owner was resident in Canada.
4. Change of Use and the 45(2) Election
(Relevant: ITA 45(1), 45(2))
A deemed disposition occurs when a property:
-
changes from personal use to income-producing use, or
-
vice versa.
A taxpayer may delay this deemed disposition by filing a 45(2) election, allowing the property to be treated as if no change in use occurred.
CRA notes:
-
A non-resident may file the election.
-
The election may defer recognition of a capital gain.
-
The election can keep the property classified as a principal residence for up to 4 years, but only if the taxpayer is resident in Canada.
4-Year Extension Removal
(Relevant: ITA 54.1)
The 4-year limit is removed if:
-
the taxpayer or spouse’s employment was relocated,
-
employer is not related,
-
the property is ≥ 40 km farther from the new work location,
-
the taxpayer reoccupies the property (or dies during employment).
5. Capital Gains, Reporting, and Section 116
(Relevant: ITA 116; IT-420R3)
On sale of a Canadian property by a non-resident:
-
A section 116 clearance certificate may be required.
-
The gain must be reported as Taxable Canadian Property.
-
The PRE can only reduce the portion of the gain related to resident years.
Key Takeaways
- A non-resident can own and even designate a Canadian home as a principal residence.
- However, the Principal Residence Exemption only applies to years the taxpayer was resident in Canada.
- Children living in the home do not provide PRE entitlement unless the taxpayer was also a resident during those years.
- A 45(2) election can defer capital gains on change of use but does not create PRE eligibility for non-resident years.
- Non-residents selling Canadian real estate must comply with section 116 reporting.
Disclaimer
This page summarizes CRA technical interpretations. These interpretations may not reflect current CRA policy. This content is for informational purposes only and is not tax or legal advice.
Redaction Notice
All names, phone numbers, office locations, signatures, and confidential identifiers from the original CRA documents have been removed to protect privacy and comply with publishing guidelines.
