However, a more common scenario where two or more personal use properties are
owned, involves a sale of only one property in a particular year.
For example, consider another scenario where a retiree couple have sold their house to
move into their cottage and intend to claim the principal residence exemption now on
the sale of the house. As noted previously, while it may be possible to claim the
principal residence exemption on the cottage when it is eventually sold/ disposed, this
claim will be significantly restricted by any claim made on the house when it is sold
now, since the principal residence exemption is available on only one property for each
year of ownership for each family unit (after 1981). As such, where the cottage and
house have both been owned for many years simultaneously, it will not be possible to
fully shelter the capital gain on both the house and cottage on an eventual sale (or at
death).
In addition, if the cottage is not sold now, this formula will not provide the result that it is
only the future gain on the cottage that will be sheltered by the principal residence
exemption on a future disposition, or that the growth thus far on the cottage is fully
exposed to taxation. Rather, it is a proration over the entire period of ownership of the
property. In these cases, while the average capital gain per year of ownership can assist
in determining the optimal claim - since the sale of one property forces a decision on
whether or not to claim the principal residence exemption now - some foresight into
the potential future appreciation (or depreciation) of the property retained will be
necessary. In particular, it will be necessary to consider the trade-off between saving tax
now by fully claiming the exemption on the property sold - while exposing the property
retained to future taxation - versus the decision to forego a principal residence claim
now, resulting in current tax to potentially save (higher) taxes in the future, in light of the
expected timelines and amounts involved.
