A property in Canada that is owned in a particular tax year by a non-resident of Canada, may qualify as the non-resident’s principal residence for that year. However, the use of the principal residence exemption by a taxpayer is limited by reference to the number of tax years ending after the acquisition of the property during which:

• the taxpayer was resident in Canada; and

• the property is the taxpayer’s principal residence.

The principal residence exemption allows only one property to be designated as a principal residence in any given tax year. However, the rules recognize that a taxpayer can have two houses in the same year, including where one house is sold and another is acquired in the same year. The tax rules contain a rule that provides relief in this case. The one plus (“one plus rule”) in the formula to calculate the principal residence exemption allows taxpayers one extra year of exemption room.

For dispositions that occur after October 2, 2016, for a taxpayer to be eligible for the one plus rule, the taxpayer must be resident in Canada during the year of acquisition of the property that is the principal residence of the taxpayer. Therefore, if a taxpayer is a non-resident throughout a taxation year in which the property was acquired, the taxpayer will not be eligible for the extra year in calculating the principal residence exemption amount.

Currently, where the taxpayer is a personal trust and the property qualifies as the principal residence of the trust, the taxpayer can claim a principal residence exemption for a taxation year where:

• the trust designates the property in Form T1079, Designation of a Property as a Principal Residence by a Personal trust and files the form with its T3 Trust Income Tax and Information Return for the year in which the sale occurred; and

• the trust lists in the designation all the specified beneficiaries of the trust for the year.

For more details about who is a “specified beneficiary”, please refer to the Income Tax Folio S1-F3-C2, Principal Residence on the CRA webpages, under the heading Personal Trusts.

For taxation years that begin after 2016, an additional requirement is proposed that the trust be an eligible trust, the specified beneficiary of which meets the conditions noted in the response to question 5.

It is proposed that “eligible trusts” fall under the following three categories:

1. The trust is an alter ego trust, spousal or common-law partner trust, joint spousal or common-law partner trust, or certain trusts for the exclusive benefit of the settlor during the settlor’s lifetime (collectively referred to as “life-time benefit trusts”), where the specified beneficiary of the trust for each tax year for which the trust is designating the property as its principal residence, is the settlor, spouse or common-law partner or former spouse or common-law partner of the settlor (as the case may be) and this person must be resident in Canada during the year.

2. Qualified disability trust, provided, the “electing beneficiary” of the trust for the year is:

• resident in Canada during the year;
• the specified beneficiary of the trust for the year; and
• a spouse, common-law partner, former spouse or common-law partner or child of the settlor.

3. A trust, the specified beneficiary of which for the year is an individual:

• who has not reached 18 years of age before the end of the year;
• who is resident in Canada during the year; and
• one of whose parents is a settlor of the trust and either of the following conditions is met:
  • neither the mother or father of the individual is alive at the beginning of the year,
  • the trust arose before the beginning of the year as a result of the death of either the mother or father of the individual.

For more information on who is an “electing beneficiary” please refer to the Qs & As on Qualified disability trust that is available on the following CRA Webpage - Graduated Rate Taxation of Trusts and Estates and Related Rules .

Yes, a trust which, for tax years that begin after 2016, is not an “eligible trust”, will continue to be eligible for the principal residence exemption with respect to the gains accrued until December 31, 2016, where the trust:

• was otherwise eligible to claim a principal residence exemption for a tax year that begins before 2017;

• owned the property, jointly with another person or otherwise, at the end of 2016, and owns it continuously from January 1, 2017 until the disposition; and

• disposed of the property after 2016.

A life-time benefit trust will not be disqualified where the property is inhabited by any of the following individuals:

• the taxpayer;

• the taxpayer’s:

• spouse or common-law partner,

• former spouse or common-law partner, or

• child.

The CRA is committed to providing taxpayers with up-to-date information. The CRA encourages taxpayers to check its webpages for any updates. All new forms, policies and guidelines will be posted as they become available.

More information about designating a principal residence and what qualifies as a principal residence is available on the following CRA webpages:

Income Tax Folio S1-F3-C2, Principal Residence

“Principal residence” chapter in Guide T4037, Capital Gains