Selling Your Former Canadian Home From Abroad: Principal Residence Relief and Section 116

Reviewed against current CRA guidance and the Income Tax Act on 16 October 2026

The short answer

• You may still be able to use the principal residence exemption, but usually only in part. The exemption formula counts only the years in which you were resident in Canada, plus one extra year if you were resident in Canada in the year you bought the home. Years after you left generally do not count.
• Section 116 applies because you are now a nonresident. You notify the Canada Revenue Agency (CRA) on Form T2062. Until CRA issues a certificate, the buyer’s lawyer will usually hold back 25% of the price, and potentially 50% of the part of the price allocated to a rental building.
• The certificate is based on your gain, not the price, and a supported principal-residence calculation can reduce the amount CRA requires.
• The certificate is not your final tax. To keep the exemption you will generally need to file a return for the year of sale and designate the home there.

If you have a signed agreement or a closing date, ask Lepore to review the sale and certificate file before the holdback is fixed. Send an outline only through the enquiry form; we will arrange a secure way to receive documents.

How much of the gain can principal residence relief still cover?

The exemption is a calculation under paragraph 40(2)(b) of the Income Tax Act. The exempt share of the gain is:

(1 + years designated as your principal residence while you were resident in Canada) ÷ (years you owned the home)

Three details decide most former-home files:

1. Only Canadian-resident years count in the top line. You may be able to designate the home for a year after you left, but that year does not increase the exempt share. CRA’s principal-residence folio (¶2.75) says this residence requirement typically prevents a nonresident from eliminating the whole gain.
2. Your year of departure counts. For this formula, “resident in Canada during” a year means resident at any time in that year (folio ¶2.21).
3. The “plus one” is conditional. For sales after 2 October 2016, the extra year is available only if you were resident in Canada in the year you acquired the home (folio ¶2.20). Most former residents meet that condition; someone who bought before moving to Canada may not.

Only one home can be designated per year for your family unit (generally you, your spouse or common-law partner and minor children). A designation of another home for the same year will reduce what this home can claim.

A worked example (illustrative figures, not a client)

You bought a home in 2012 while living in Canada, lived in it until you moved to the United States in 2019, did not rent it, and sell it in 2026 for $1,100,000. Your adjusted cost base is $500,000, so the gain before selling costs is $600,000.

• Years owned: 2012 to 2026 = 15
• Years designated while resident in Canada: 2012 to 2019 = 8, plus 1 = 9
• Exempt share: 9 ÷ 15 = 60%, or $360,000
• Gain not covered: $240,000

For the Section 116 certificate, CRA generally requires 25% of the uncovered gain: about $60,000. Without a certificate, the buyer’s exposure is 25% of the price: $275,000. That difference is why a supported calculation matters before closing. Your actual tax is calculated later on your return, where selling costs and other items are taken into account.

If the home was rented after you left, the calculation changes. The conversion to rental may have triggered a separate deemed sale, and part of the price may relate to a depreciable building. Our companion article on renting your Canadian home after moving abroad covers that path.

The three dates that change the answer

1. Your Canadian tax departure date. Moving day, immigration status and tax residence do not always line up. Residential ties, and any treaty tie-breaker rule, decide when you stopped being resident. Canada generally does not treat Canadian real property as sold when you emigrate (CRA, dispositions of property for emigrants), unless you elected to report a deemed disposition on Form T2061A. So do not assume the home’s value on departure is its new Canadian tax cost.

2. The change-in-use date, if the home was rented. If the whole home changed from personal use to earning rental income, paragraph 45(1)(a) generally treats you as having sold and reacquired it at fair market value on that date. A valid subsection 45(2) election can switch that off. The date is a question of fact: move-out, advertising, the first lease, vacancy and family use all matter. It is not automatically the date you crossed the border.

3. The sale date. The sale triggers Section 116. For real estate, CRA’s Section 116 circular IC72-17R6 (¶19) says the disposition normally occurs on closing.

Section 116: why the buyer’s holdback is not your tax bill

The request and the certificate are different forms. Form T2062 is your request. CRA issues the certificate: Form T2064 for a proposed sale or Form T2068 for a completed one (IC72-17R6, ¶47). A depreciable building may also need Form T2062A.

Timing. You may notify CRA before closing. CRA asks that a proposed-sale notice be sent at least 30 days before the sale so it has time to review it (¶6). That is a request for lead time, not a processing promise. If you made no proposed-sale notice, or the deal changed in certain ways (a different buyer, a higher price, or a lower cost base), you must notify CRA of the actual sale within 10 days after closing (subsection 116(3)). Missing that deadline can lead to a penalty of the greater of $100 and $25 per day, up to $2,500 (¶12).

What the buyer can be liable for. If no certificate covers the sale, the buyer can be liable for 25% of the purchase price for ordinary capital property (subsection 116(5)). For depreciable taxable Canadian property, such as a building that was used to earn rent, the buyer’s exposure under subsection 116(5.3) is 50% of the amount allocated to it. Buyers’ lawyers hold back funds to cover that exposure.

What CRA requires for the certificate. For capital property, the payment or security is 25% of the amount by which the proceeds exceed your adjusted cost base; selling costs are not deducted at this stage (¶41). Where the gain is reduced by the principal residence exemption, the required amount can be reduced. You claim that reduction with Form T2091(IND) or a signed letter attached to the notification that sets out the calculation (¶73; folio ¶2.78). In that calculation, do not count years in which you were not resident in Canada.

What happens to the money. The certificate protects the buyer. It does not settle your tax. Amounts you pay CRA for the certificate are credited to your account and reconciled when your return for the year of sale is assessed (¶1, ¶46, ¶60). Money still held in a lawyer’s trust account is released under the closing documents and certificate terms, so ask counsel exactly what triggers release.

Three practical points that delay certificates:

• No Canadian tax number. A seller without a SIN or ITN needs one before CRA can issue a certificate (¶9). CRA asks that ITN applications (Form T1261) be sent separately from the disposition request (CRA, disposing of certain Canadian property).
• Underused Housing Tax. Under subsection 116(8), CRA can decline a certificate for residential property if a seller who is an “affected owner” (generally a nonresident who is not a Canadian citizen or permanent resident) has not filed the required UHT returns or paid UHT. A Canadian citizen who owns the home personally is generally not an affected owner, but ownership through a trust, partnership or corporation needs checking.
• Québec property. A home in Québec also requires a separate Revenu Québec notice on Form TP-1097-V, with its own certificate process.

You will usually need a sale-year return to keep the exemption

For 2016 and later years, CRA allows the principal residence exemption only if you report the sale and the designation on your return: Schedule 3 and Form T2091(IND) (CRA, principal residence reporting). CRA accepts late designations only in certain circumstances, and a penalty may apply.

CRA’s circular does describe a narrow case where a nonresident seller need not file a return: certificates cover every taxable Canadian property sold, no Part I tax is payable, and no other amounts are owing (¶59). A seller relying on the principal residence exemption should not treat that as a reason to skip the return. The return is also how you recover any certificate payment that exceeds your final tax. For individuals, it is generally due 30 April of the year after the sale (¶61).

If you now live in the United States, coordinate the U.S. return

A Canadian designation and a Canadian certificate answer Canadian questions only. U.S. citizens and residents generally report worldwide income in U.S. dollars (IRS). The U.S. basis, any rental depreciation, the U.S. home-sale exclusion and relief for Canadian tax each need separate U.S. analysis (IRS Publication 523). Give your U.S. adviser the same ownership and use timeline that supports the Canadian file. Do not assume the two countries will use the same values or dates.

From our practice: the dates mattered more than the address

We are currently acting for a former Canadian homeowner who lives abroad and is selling a home that was rented after they left. Our companion article describes the same matter from the rental angle. It first looked like a routine Section 116 application. In practice, we had to separate the tax departure date from the later rental conversion, test which years can support a principal-residence claim, confirm whether a 45(2) election or any CCA claim exists in the filed returns, and reconcile the rental filings with the lawyer’s holdback. We asked for the underlying returns and property records before any position is put to CRA.

The matter is ongoing. We claim no exemption amount, certificate, timing, refund or tax saving here. Identifying details have been left out.

The point for other sellers: the valuable work happens before a form is filed, while conflicting dates or a missing election can still be found and documented.

What a defensible file should contain

• Residence and ownership timeline: purchase and title documents, any title changes, your departure-year return (including Form T1161 if you had to list your properties when leaving), evidence of your current tax residence, and family-unit designations.
• Use of the home: move-out date, who lived there, rental advertising, the first lease, vacant periods and any partial rental.
• Tax records: returns for the conversion and rental years, any election letter, T2091 designations, CCA schedules, Section 216 returns, NR4 slips and NR6 approvals.
• Cost and value: purchase documents, major capital improvements, support for fair market value at any change in use, and the sale price. Where an old value is material, a retrospective appraisal may be worth commissioning. CRA can review values and may ask for an appraisal (¶24–25).
• Closing file: the signed agreement, closing date, the lawyer’s holdback terms, co-owner details and certificate status.

Not every item applies to every seller. We identify the issues that matter, prepare the written calculation, assemble support for CRA and coordinate timing with your lawyer or notary.

Questions former homeowners ask

A focused next step

Tell us the province, approximate closing date, the years you lived in the home, when you left Canada, and whether the home was rented. We will tell you which records the Section 116 and principal-residence review needs, and propose a scope. Request a former-home sale review with Lepore & Company.

This article is general information on Canadian tax law and CRA guidance as at 16 October 2026. CRA folios and circulars state CRA’s administrative positions, not the law itself. Residency, elections, gain calculations, provincial rules and U.S. tax treatment depend on your facts.

Primary sources

• Income Tax Act, section 116 and paragraph 40(2)(b) (Justice Laws)
• CRA, Income Tax Folio S1-F3-C2, Principal Residence, ¶2.20–2.21, 2.48–2.50 and 2.75–2.78
• CRA, Information Circular IC72-17R6, Section 116, ¶6, 9, 12, 41, 46–47, 50–51, 59–61 and 73
• CRA, Dispositions of property for emigrants
• CRA, Disposing of or acquiring certain Canadian property
• CRA, Principal residence and other real estate
• Revenu Québec, Form TP-1097-V
• IRS, U.S. citizens and residents abroad: filing requirements and Publication 523