Choosing the matrimonial home - MoneySense

Choosing the matrimonial home

Some say life shouldn’t change when you’re married, but that’s not how the taxman sees it—especially when it comes to property ownership. Bruce Sellery has this advice for a soon-to-be married couple.




My fiancée and I both have principal residences and neither of us wants to lose the capital gains exemption when we get married. Delving into the Canada Revenue Agency website, it seemed to say one of us could elect to keep our principal residence while converting it a rental for up to four years. Other websites seemed to indicate this was not possible once you are married, which makes us wonder what our options really are. I appreciate any insight you might have.


I’m a big fan of the institution of marriage. You have someone to talk to after a bad day at the office, and another salary to use to share the mortgage payment. Having a spouse also makes childcare easier, and allows you to split the household chores. To top it all off, the actuaries actually say that you’ll live longer than someone who isn’t married.

So provided you still like the person you promised to be with “as long as we both shall live,” it is a pretty good deal. But that doesn’t mean you get to have two principal residences after you tie the knot. Sorry.

Only one principal residence per family

As you know, the CRA allows you to have just one principal residence per family, for the purposes of the capital gains tax exemption. This rule applies even if you didn’t actually walk down the aisle and sign a marriage license. The language was made au courant in 2001 when the CRA added in “common-law partner,” in addition to “spouse.”

You don’t have to choose which house you designate as your principal residence immediately; you can make the election when you sell one of the properties, unless you decide to rent one of the properties. The CRA website says, “You can be considered to have sold all or part of your property even though you did not actually sell it.” For example, “You change all or part of your principal residence to a rental or business operation.”

Rental option of principal residence must meet conditions

There is an exception, as you mentioned. The Income Tax Act allows you to elect under subsection 45(2) to have a property remain as your principle residence upon converting it to a rental for up to four years. But there are a bunch of conditions you have to meet, related to employment.

I reached out to Jason Heath, a fee-only financial adviser at Objective Financial Partners, to get a better handle on how those conditions might apply to you. Broadly speaking, you would have to be living away form your principal residence for work or because your partner is relocating for work.

Heath goes on to say “a taxpayer can designate a property as their principle residence for up to four years even if they are renting it, but they can’t simultaneously designate another property that their spouse owns as that family’s principle residence.”

So in your case, if you were to rent your house out and move into a rental property with your spouse then you could still designate your house as your principal residence even though you’re not living there—although you would still need to file a subsection 45(2) election as part of your next tax filing. The problem is, says Heath, you plan to move into a property that’s already owned by your soon-to-be spouse. In that case as a family unit you’d own two properties at the same time, but only one can be designated as your principal residence.

Calculating capital gains tax

The rules on capital gains tax can be complicated for those who aren’t immersed in them. I recommend you connect with an accountant before you sell to help you figure out your adjusted cost base and to see if any reserves or deductions apply in your circumstances.

The super simple calculation is that you pay tax on half of the proceeds of the sale, at your marginal tax rate. Say you sold the property and recognized a $100,000 gain you would pay tax on $50,000. So if you are in a 40% tax bracket that would be $20,000.

While the tax component is part of the equation on which property to keep and which to sell, there are other more important variables to consider, such as investment goals and marital harmony. And don’t under-estimate the importance of marital harmony.