Electing Principal Residence, Capital Gains Options

[John Moffatt]

On the sale and purchase of my city homes over the years, I have always declared them as my principal residences. Now, I m about to sell my cottage and it will be subject to a major capital gain. Can I elect the cottage as my principal residence and, if so, what is the formula to calculate whether it is beneficial for me to do so?

[GuyL]

Basically, the "formula" will be to compare the capital gain you made on your cottage during the time you owned it and compare that to the value that your city home gained during the same time period, because if the cottage is designated as your principal residence during the time that you owned it, then the value that your city home gained during that time period will become a capital gain when you eventually sell it.

If the value gain of either home was not linear over the years, then you could presumably designate the "principal residence" of either one for a range of specific years where the one designated as principal residence gained the most value, but actually proving that might be contentious.

CRA's information on designating a principal residence:

http://www.cra-arc.gc.ca/E/pub/tp/it120r6/it120r6-e.html

[JohnNP]

On the sale and purchase of my city homes over the years, I have always declared them as my principal residences. Now, I m about to sell my cottage and it will be subject to a major capital gain. Can I elect the cottage as my principal residence and, if so, what is the formula to calculate whether it is beneficial for me to do so?

no, not really in the way that you think

you would have had multiple deemed dispositions

it is likely not worthwhile to pay an accountant to do the multi-year complex calculations of alternative scenarios should you consider refiling past years tax returns and paying the additional taxes in arrears
(but if you think that you may wish to explore that - maybe you could give your professional accountant (all) the details and request a limited engagement only to give a professional opinion on whether it would be worth going ahead to examine the facts (reality) and do further calculations if reality warrants). whilst in certain cases one can elect certain alternative tax treatment, there are limited opportunities for a non-shizophrenic to elect to change alternative reality

[Tim Parris]

On the sale and purchase of my city homes over the years, I have always declared them as my principal residences. Now, I m about to sell my cottage and it will be subject to a major capital gain. Can I elect the cottage as my principal residence and, if so, what is the formula to calculate whether it is beneficial for me to do so?

Since you have already declared your city homes as principal residences, unless you wish to revisit those decisions (not necessarily a wise choice), you will be limited to the period from your previous city home to present. Please look at form T2091 to understand the CRA's viewpoint of gain on a residence which was partially principal and partially secondary residence. Evaluate the choice based on the profit on the sale of the cottage vs. the projected profit on the sale of your city home.

Most people, when they see the form T2091, generally don't wish to tackle it but you may be different. Or you can engage a professional accountant to handle the problem. It isn't an easy one.

GuyL's assistance is basically correct, though there is a gotcha in your situation which he glossed over. I have pointed that problem out in my message.

JohnNP's assistance points out the difficulty in changing methods mid-stream. You don't necessarily realize the can of worms that you are looking to open.

An accountant would help with addressing the problems and you may well find the price worthwhile to have it taken care of properly.

[John Moffatt]

no, not really in the way that you think

you would have had multiple deemed dispositions

it is likely not worthwhile to pay an accountant to do the multi-year complex calculations of alternative scenarios should you consider refiling past years tax returns and paying the additional taxes in arrears
(but if you think that you may wish to explore that - maybe you could give your professional accountant (all) the details and request a limited engagement only to give a professional opinion on whether it would be worth going ahead to examine the facts (reality) and do further calculations if reality warrants). whilst in certain cases one can elect certain alternative tax treatment, there are limited opportunities for a non-shizophrenic to elect to change alternative reality

[dunner]

Given the multiple dispositions in the past and the "major capital gain" resulting from the cottage sale, I would really recommend sitting down with an accountant who knows the ins and outs of the PRE (not all do). I would also take a look at your prior years' dispositions. Did you have capital gains in all those previous dispositions? If not, you would NOT be deemed to have claimed the principal residence exemption for those relevant years and those years may still be available to designate your cottage as a principal residence (as long as you owned the cottage in those years, of course).