Principal Residence Exemption in BC

Short answer: When you sell a home that was your principal residence for every year you owned it, the principal residence exemption usually eliminates capital gains tax on the profit. You still have to report the sale on your tax return (Schedule 3 and Form T2091) for the year you sell. Cottages, rentals, acreages over half a hectare, homes you’ve partly rented and homes held under 365 days can all change the answer, so talk to your accountant before you list.

I’m a REALTOR, not an accountant, and this is general information as of 2026, not tax advice. But this question comes up with nearly every seller I work with, especially people who own a second property at SilverStar or a rental alongside their Vernon home. Knowing the basics helps you ask your accountant the right questions early.

What is the principal residence exemption?

Normally, when you sell capital property for more than you paid, the profit is a capital gain and part of it is taxable. The principal residence exemption lets you reduce or eliminate that gain on a home that was your principal residence.

According to the CRA’s principal residence page, a property can qualify if it’s a housing unit (a house, condo, cottage, mobile home and so on) that you own alone or jointly, and that you, your spouse or common-law partner, a former spouse or partner, or any of your children lived in during the year.

Does the principal residence exemption cover my whole property?

Usually the land that qualifies is limited to half a hectare (about 1.24 acres) around the home. More can qualify in some cases, for example where a municipal minimum lot size required you to own more land, but that needs to be shown.

That matters in the North Okanagan. If you’re selling an acreage in the BX, Lavington or the Commonage, part of your gain may not be covered by the exemption. Ask your accountant how the land will be treated before you sign a listing agreement, not after you’ve sold.

Thinking of selling in the next year? Find out what your home is worth with a free home valuation based on recent sales near you, or book a 10-minute chat. Prefer to text? 778-363-0542.

Can a family claim two homes?

Since 1982, a family unit (you, your spouse or common-law partner, and your unmarried minor children) can designate only one property as a principal residence for each year. If you own a Vernon home and a ski cabin at SilverStar, or a house and a lake cottage, you’ll need to choose which one to designate for each year you owned both.

The choice doesn’t have to be made until you sell one of them, and the right answer often depends on which property gained more value per year. This is exactly where an accountant earns their fee.

There’s also a “plus one” year in the formula, which helps when you sell one home and buy another in the same year, so both can be covered for that year.

Do I have to report the sale if no tax is owing?

Yes. Since the 2016 tax year, CRA only allows the principal residence exemption if you report the sale. You report it on Schedule 3 of your return for the year of sale and designate the property on Form T2091(IND). If the property was your principal residence for every year you owned it, the reporting is simple, but it still has to be done. CRA may accept a late designation in some circumstances, but a penalty can apply. Links: Schedule 3 and Form T2091(IND).

What if I sell within a year of buying?

Since January 1, 2023, the federal residential property flipping rule says that if you sell a home you’ve owned for less than 365 consecutive days, any profit is generally treated as business income, fully taxable, and the principal residence exemption isn’t available. There are exceptions for certain life events, including death, a household addition such as a new child, separation, threats to personal safety, serious illness or disability, a move for work, involuntary job loss, insolvency, and destruction of the home.

In BC there’s a separate provincial tax on top of that for homes held under 730 days. I cover it in BC’s home flipping tax explained.

What about homes with a suite or a home office?

Many Vernon homes have a legal suite, and lots of people now work from home. The CRA generally allows you to keep the full exemption if the income-producing use is ancillary to the main residential use, no structural changes were made to accommodate it, and you haven’t claimed capital cost allowance (depreciation) on that part of the home. If any of those aren’t true, part of the gain could be taxable. The detail is in the CRA’s Income Tax Folio S1-F3-C2. Keep records, and never claim depreciation on your home without advice.

What if I turned my home into a rental, or moved into a former rental?

A change in use is treated as if you sold and immediately bought the property back at fair market value, which can trigger a gain. There are elections that can defer this in some cases, and they have deadlines. If you’ve rented out your former Vernon home while living elsewhere, or you’re moving into what used to be your rental, get tax advice before you sell.

What’s the capital gains inclusion rate in 2026?

For individuals, the proposed increase in the capital gains inclusion rate was cancelled in 2025, so as of 2026 the inclusion rate remains one half. That means half of a taxable capital gain is added to your income. It only matters for the part of your gain the principal residence exemption doesn’t cover. Confirm the current rules with your accountant, since tax rules can change.

What if I’m a non-resident selling in BC?

Non-residents of Canada selling Canadian real estate face different rules, including a clearance certificate process with the CRA and possible withholding by the buyer’s lawyer until it’s in place. Build that time into your plans and get a Canadian tax professional involved early.

Frequently asked questions

Do I pay capital gains tax when I sell my house in BC?

Not usually on a home that was your principal residence for every year you owned it, but you must still report the sale on Schedule 3 and Form T2091(IND).

Can I claim my SilverStar cabin as my principal residence?

It can qualify if you or your family ordinarily lived in it during the year, but your family can only designate one property per year. Ask your accountant which designation saves more.

Does the exemption cover my whole acreage?

Generally only the home plus up to half a hectare of land, unless you can show the extra land was needed for the use and enjoyment of the home.

Is there a time limit for owning a home before the exemption applies?

Under the federal flipping rule, homes sold within 365 days are generally taxed as business income with no exemption, unless a life-event exception applies.

Before you list, it’s worth a conversation with your accountant and your lawyer or notary. When you’re ready to talk about the sale itself, see my guide to selling your home, or read about how to price your home in Vernon. If you’re thinking about a second property, my SilverStar neighbourhoods page is a good place to start.

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Questions about buying or selling in Vernon?

I’m Sean Phillips, a REALTOR® with Coldwell Banker Executives Realty in Vernon, BC. I live in Okanagan Landing, and I help buyers and sellers across Vernon, Coldstream, SilverStar and the North Okanagan.

Text or call Sean: 778-363-0542
Call or text Sarah, my 24/7 info line: 604-227-4810

Book a 10-minute chat with Sean

This article is general information as of fall 2026, not legal, tax or financial advice. Rules, fees and conditions change, so confirm details with the appropriate professional or authority before making a decision.

Featured photo by maks_d on Unsplash.

Selling Your Home in BC: Capital Gains and the Principal Residence Exemption