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Principal residence exemption – renting to a child

The Canada Revenue Agency (CRA) was asked if a taxpayer’s property designated as his “principal residence” but rented and lived in by his son continued to qualify as his “principal residence” for the purpose of claiming a principal residence exemption to shelter a gain from personal tax.

The taxpayer owned the residence for 10 years. He rented the residence to his child for the whole period at a rent below fair market value. The child lived in the residence with his family for the whole period. The taxpayer lived in a center for the elderly for the whole period. The taxpayer had no other capital property to designate as his principal residence.

The CRA confirmed that nothing in the Canadian tax rules prevented the taxpayer from designating the above residence as his principal residence for the period of 10 years even if his son rented and lived in the residence during the whole period. The Canadian income tax definition of principal residence in requires the taxpayer, his or her current or former spouse or common-law partner, or his or her child to ordinarily inhabit the housing unit during the year. This would be the case in the above situation since the taxpayer’s child and his family lived in the house during those 10 years. Nothing in the definition of principal residence prevents a housing unit rented and inhabited by the owner’s child to qualify as a principal residence regardless of the amount of rent charged to the child (i.e., at, below, or over fair market value). The taxpayer could therefore designate the residence as his principal residence for the whole 10-year period for the purpose of claiming a principal residence exemption on the capital gain realized on the future sale of the residence.

It is not unusual for elderly taxpayers who require care to cope with the day to day demands of life to move into assisted living facilities. This technical interpretation will bring some comfort to the taxpayers and their appointed representatives when it comes time to sell the family home.

About Derek de Gannes
Derek A. de Gannes: Senior Director, Private Client Services of RSM Canada. RSM Canada is committed to the highest level of integrity, quality and professionalism and provides clients with solutions in the area of Audit, Tax and Transaction Services. Email: