Principal Residence Designation

Since 1998, Petumala Fluffy has owned a residence in Kelowna, British Columbia. It was acquired in that year at a cost of $623,000.

In 2006, Petumala was appointed to the Senate and, because of the significant amount of time that she was required to be present in Ottawa, she acquired a second residence in that city. The cost of this residence was $426,000. In each of the subsequent years, she spent some time at each residence.

In 2017, following allegations that she had claimed and double claimed completely inappropriate travel costs, she resigned from the Senate. As this created severe financial difficulties (among other problems), she sold both residences and moved in with her mother. The Kelowna house sold for $897,000, while the Ottawa home sold for $534,000. These amounts are net of all real estate fees.

Ms. Fluffy would like to minimize any capital gain that arises as the result of selling the two properties.

Required: Describe how the residences should be designated in order to accomplish Ms. Petumalas goal. In addition, calculate the total amount of the gain that would arise under the designation that you have recommended.