Not everything in life is free, but in the tax world, there are two such items.

Firstly, you don't pay tax on an inheritance. But while you can't count on a tax-free inheritance, most home owners will appreciate the fact that the profit from the sale of their home is tax-free. For example, if you sell your home for $500,000, which you purchased for $300,000, the profit of $200,000 is tax free because of the principal residence exemption. A principal residence includes a house, condo, trailer, house boat or cabin, which you own and where you, your spouse or child lives in.

If you own a house and a cabin, you could own two principal residences. Your cabin could be your principal residence if you use it occasionally and the main reason for owning the cabin isn't for rental purposes.

However, you can only claim the principal residence exemption on only one property in a year. For example, if you bought your home and cabin in 2000 and made money selling both in 2009, you can claim the principal residence exemption to make the larger profit tax-free. The smaller profit will be taxed as a capital gain.

Could you and your spouse not claim the exemptions on the home and cabin respectively, in the above example, and make both profits tax-free? Not anymore. The rules were tightened up and after 1982, spouses can only claim one principal residence exemption between them in the year.

This question might be keeping you up at night. Is the principal residence exemption eroded if you rent part of your home? If you rented two of the four bedrooms in your home, do you have a 50 per cent principal residence and a 50 per cent principal residence exemption?

The Canada Revenue Agency says "not really." In their tax bulletin on principal residence (http://www.cra-arc.gc.ca/E/pub/tp/it120r6/it120r6-e.html), the CRA says your home remains a principal residence if these three conditions apply: You didn't put in any structural change to the property because of the rental; you didn't claim any capital cost allowance on the property; and the rental portion of the house is "ancillary" to the main use of the property as a residence.

The first two conditions are straightforward. The third - ancillary - isn't so. Presumably, renting one bedroom out of four bedrooms makes the rental ancillary. But where's the line in the sand? Its unclear.

The CRA stated that renting "one or more rooms" does not change the principal residence status of the home. By extension, you could rent out three of four bedrooms and your house remains your principal residence as long as you live in it.

As well, "ancillary," in my view, means secondary. If you bought a four-bedroom house because you wanted to live in your own home, the primary purpose of the house is as your residence.

Renting out rooms, no matter how many, will always be ancillary to that purpose.

Nonetheless, there are circumstances where your home can be partly principal residence and partly investment property.

If your home has a self-contained suite or duplex for earning rental income, the rental portion is an investment property whether or not you claim capital cost allowance on that portion of the building. Therefore, if you make money selling that property, the portion of the gain on the rental suite is taxable.