Uninhabited renovated residences may not be eligible for the principal residence exemption

The Court of Quebec ruled that a couple, who renovated a house but did not move in, did not qualify for the principal residence exemption.

Two individuals bought a dilapidated house in Montreal for $695,000 and spent $350,000 on substantial renovations.

Seven months after buying the property, they put it up for sale for $1,250,000 and sold it two months later. The Quebec Revenue Agency (ARQ) did not dispute that the sale was on capital account, but rejected their claim for the principal residence exemption. The taxpayers had never lived or had meals in the property but instead stayed in a shared rented apartment while overseeing the renovation work.

The judge, in denying the exemption, noted that the taxpayers did not claim to have "inhabited" the property but rather "occupied" it by supervising and participating in the renovation work.

He emphasized that the term "inhabit" is limited to actually living in a place and does not include the intention to do so.

The principal residence exemption cannot be claimed if the property in question is not actually inhabited.

If a residence has been renovated after it was acquired but is not actually inhabited, the principal residence exemption may be denied

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