This exemption to the home-sale capital gains tax was passed because retirees were selling their big houses and moving into smaller condos or whatnot. The houses were sold at great profit (imagine buying 30 years ago!) and the smaller place of course cost less. So, the retirees were getting whacked with capital gains taxes on the sale of basically most people's only high-value investment. Most people would agree that this is unfair, hence the exemption.

Of course this applies only to the primary home (not investment or summer houses) and can be done only once in a lifetime.

-a