Principal Residence Argument

Tax Topics
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Here is the case:

Client bought a prebuilt condo in Quebec in 2018. it was only completed in 2023 and by this time, the client had moved to another province due to work. She rents out the place, and she wonders if she could still claim it as principal residence when she sells the unit considering she has not bought another home. If not, could she stopped the rental activity and moved the address back there for a few months prior to the sale of the condo to claim the PRE?

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Technically, she would still have to meet the “ordinarily inhabited” rule. If she actually LIVED there in 2023, the PRE would cover the last year, but just “changing the address” wouldn’t mean she actually lived there. I would be worried about filing her tax return if you knew she didn’t live there (could make you an accessory to her tax fraud).

But, she could request the MNR to allow a late filed 45(2) election, which would cover the first 4 years. As such, most of the gains could be sheltered by the PRE. Than, she could report no gain over the last year, but she might have to prove that the FMV didn’t increase during that year.

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Whether a property is ordinarily inhabited in the year by the taxpayer, or spouse, former spouse, or child is to be resolved on the basis of the facts in each particular case. The Court has interpreted ‘ordinarily inhabit’ to mean “normally occupy as a home.”

It is not necessary to show that the tax payer spends the majority of their time in that property. Although a taxpayer may inhabit a property for only a short period of time in the year (e.g., as in the case of a cottage or vacation home), this is sufficient for the property to be considered “ordinarily inhabited” in the year.

The Rebus case deals with “Ordinarily Inhabited” … especially paragraph 24.

https://www.canlii.org/en/ca/tcc/doc/2002/2002canlii842/2002canlii842.html

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@CalgaryTax91
I was not going into detail about what constitutes “ordinarily inhabited”. @snoplowguy has given you that. Per your original post, it sounded to me like your client had not inhabited the home AT ALL (even for a single day). I should have stated that my “advice” was based on that assumption.

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No. And in claiming the PRE would be in violation of the ACT, regardless if the intent was to occupy as a primary residence or not. Any claim on primary residency here would most likely be disallowed on review and your client would get slapped around with a reassessment and applicable penalties.

A 45(2) is only applicable where there was an initial change in use to begin with, meaning the residence would have been occupied prior to rental. In this case, it is not applicable, and electing under the act would be a violation.

You can’t just move back into a place for a few months and expect to be completely exempt on taxes… by that logic, the entire country would never pay taxes.