As most taxpayers know, when you sell your principle residence, the capital gain on the disposition is exempt from tax as it is protected by a principle residence exemption. But many people are asking if the gain is protected if they rent portion of their house while still living in it. What if they rent more than 50% of the house?

It is the CRA’s practice to consider that the entire property retains its nature as a principal residence, where all of the following conditions are met:

a) the income-producing use is ancillary to the main use of the property as a residence. This means that the property is ordinarily inhabited in the year by the taxpayer or by his spouse/former spouse or a child.
b) there is no structural change to the property; and
c) no CCA is claimed on the property.