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Capital Gains × Principal Residence Exemption (PRE)

Also known as: Principal Residence Exemption · PRE · T2091 · PRE designation

How the federal principal residence exemption meets the 50% capital gains inclusion rate when you sell a BC property. Only one property per family per year can be designated, and the exemption never applies automatically. Every principal-residence sale since 2016 has to be reported on Schedule 3 with Form T2091(IND).

Capital gains tax applies when a Canadian-resident seller disposes of real estate at a profit. Federally, 50% of the gain is included in taxable income. The proposed 66.67% inclusion rate on gains above $250,000 was officially cancelled on March 21, 2025, so the inclusion rate is 50% across the board for the foreseeable future.

The Principal Residence Exemption (PRE) lets a Canadian-resident individual exempt the gain attributable to years a property was "ordinarily inhabited" as their principal residence, computed across all years owned plus a "+1 year" bonus that covers the year of acquisition of a replacement.

The principal residence exemption does not apply automatically. It does not. Since the 2016 CRA reporting changes, every disposition of a principal residence MUST be reported on Schedule 3 and designated via Form T2091(IND); failing to file triggers a $100/month penalty (max $8,000) and can cost the exemption retroactively. The other trap: only ONE property per family unit per year can be designated.

Owners with both a city home and a recreation property (cottage, cabin, ski condo) must allocate years between them, and the math rarely matches intuition: for many families the cottage gets some PRE years even though the city home is "the" principal residence. Multi-property owners should also check the federal anti-flipping rule (365-day hold) and BC Home Flipping Tax (730-day hold) before disposing.

Related terms

  • Capital Gains Inclusion Rate — Half of a capital gain is included in taxable income federally, and that has not changed.
  • BC Home Flipping Tax — A BC tax on the profit when you sell a home you have owned less than 730 days.
  • Federal Anti-Flipping Rule — A federal rule that treats the profit on a home sold within 365 days as fully taxable business income rather than a capital gain.

See also

Sources: CRA, Government of Canada(4)
Review dates, licence and how to cite this entry
Rule effective
2016-01-01
Last verified
2026-08-02
Next scheduled review
2027-02-05
Cite this fact

Use any of these formats. Codex content is licensed under CC BY 4.0 — attribution required.

BibTeX — LaTeX, academic
@misc{bronsonjob-bc_tax_capital_gains_pre_interaction,
  author       = {Job, Bronson},
  title        = {{Capital gains on real estate × Principal Residence Exemption (PRE)}},
  howpublished = {BC Real Estate Codex},
  year         = {2016},
  url          = {https://www.bronsonjob.com/codex#bc.tax.capital_gains_pre_interaction},
  urldate      = {2026-08-02},
  note         = {Fact ID: bc.tax.capital_gains_pre_interaction, version 1.}
}
APA — Press, journalism
Job, B. (2016). Capital gains on real estate × Principal Residence Exemption (PRE). *BC Real Estate Codex*. Retrieved 2026-08-02, from https://www.bronsonjob.com/codex#bc.tax.capital_gains_pre_interaction
Plain link — Slack, email, Twitter
Capital gains on real estate × Principal Residence Exemption (PRE) — Bronson Job PREC, BC Real Estate Codex (2026-08-02). https://www.bronsonjob.com/codex#bc.tax.capital_gains_pre_interaction

Fact id: bc.tax.capital_gains_pre_interaction · v1 · machine-readable: /api/v1/facts/by-id/bc.tax.capital_gains_pre_interaction.json

License: This definition is licensed under CC BY 4.0. Cite as: "Capital Gains × Principal Residence Exemption (PRE)", BC Real Estate Glossary by Bronson Job, https://www.bronsonjob.com/glossary/capital-gains-and-pre.

Bronson Job PREC, REALTOR® at Momentum Realty Inc.. GVR Member #6015742 · FVREB Member #FJOBBR