When you sell a home that you have used as your principal residence, you do not have to pay tax on any gain from the sale because of the principal residence exemption (PRE).
You will receive the PRE if the property was your principal residence for every year you owned it.
For the property to qualify as your principal residence for any year, you, your spouse, or any of your children must live in it at some time during the year, and you must designate the property as your principal residence.
If you move out of your home, there is a change in the use of the property from personal residence to income producing. Capital gains made before this change of use are exempt due to the PRE, and gains made after this event are not exempt.
Even if there is a change of use, a PRE remains available to you provided you make the Section 45(2) election. When you change your principal residence to a rental property, you can elect for the property to be considered your principal residence for up to four years, during which period, you do not have to report any capital gain.
You can extend the 4-year limit indefinitely given certain conditions including if you live away from your principal residence because your employer, or your spouse's wants you to relocate.
The content of this article is intended to provide a general guide on the subject matter. It is not intended to replace professional advice. Specialist advice should be sought about your specific circumstances.