How does the principal residence exemption work?                                                           

The principal residence exemption can save you boatloads of money when you sell a residence that you live in. In Canada, the CRA, allows you to claim any property you "ordinarily inhabit"  as a principal residence-be it a house, cottage, or condominium.

What are some of the caveats?

Spouses can only claim one principal residence between them and the exemption is limited to the dwelling and half of a hector (1.24 acres).

What about those who own multiple properties? 

The great news is that you can claim the property with the highest accrued gain as your principal residence for any given period.  So, if you have a cottage and a home in different areas and you are selling both, you can claim the gain on the property that has increased most in value.

Click the link below for CRA website for further info!