The Principal Residence Exemption: I get asked about this at least half a dozen times a year. Canadians have the impression that it is a tax exemption as of right... WRONG! A dangerous trap that merits a thorough reading prior to taking this provision for granted. The old CRA Interpretation Bulletins are being morphed into "Income Tax Folios" for better organization and web management. The one dealing with the Principal Residence Exemption is now called Income Tax Folio S1-F3-C2 Principal Residence and can be found here: http://www.cra-arc.gc.ca/tx/tchncl/ncmtx/fls/s1/f3/s1-f3-c2-eng.html
If you are on the right side of the tax law on this provision, then the capital gains from the disposition of your principal residence will be exempt from capital gains tax. This is a loaded sentence: 1. the gain has to be from capital, not on account of income; 2. it has to be your (a) principal (b) residence. Failure to meet these criteria and you go from tax free to "ouch" very quickly. It is best to consult a qualified Tax Professional if you are in any doubt and you have not yet decided where to "say" you have lived, are living or where you will live, so you can plan to be on the right side of this provision. Yes, you can live in a residence and then move out and still under some circumstances designate it as your PR even while you are no longer there, but you had better make sure you are doing it correctly. By "qualified tax professonal", I do not mean your regular accountant or bookkeeper. I mean a professional who speciallizes in taxation opinions.