The Canada Revenue Agency (CRA) made a major change to the Principal Residence Exemption that affected Canadians when filing their 2016 tax returns. Regardless of whether the sale is exempt or not, individuals are now be required to report the sale of their principal residence on their personal tax return.
Under the Principal Residence Exemption (PRE), you do not have to pay tax on any capital gain you incur from selling your personal home. This is the tax that would be payable on the increase in value from the time of purchase, up to when it is sold. Your personal home could be a house, cottage, condominium, apartment, trailer, mobile home, or houseboat. If it is a house, the exemption also includes up to 1.2 acres of land. The parking spot is also included if you own a condo, provided the spot is part of the housing unit and is owned by the same person.
In the past, you were not required to report anything if you sold a home that was designated as your principal residence and the gain was fully exempt. CRA changed its policy effective January 1, 2016. This means that if you sold your home on or after Jan 1, 2016, it will need to be reported on Schedule 3 of your personal income tax return.
The following information must be reported:
- Year of acquisition
- Original purchase price
- Sale price (proceeds)
- Costs associated with the sale
- Description of the property
Even if exempt, a capital gain/loss will also need to be reported on Schedule 3 in the following cases:
- When there is a change in the way the property is being used. For example, if you move to a new home during the year but decide to keep your existing home as a rental property. In this case, you are considered to have “disposed” of the existing property as you are no longer using it for residential purposes.
- If a homeowner passes away, the home is considered to be “disposed” of. It needs to be reported on the individual’s final tax return.
The penalties are high for those individuals who do not report the sale of their principal residence. CRA will charge a penalty of $100 per month, to a maximum of $8,000.
Another major change is that CRA now has the authority to assess individuals at any time. The Principal Residence Exemption is not subject to the normal reassessment period (which is typically three years from the date of your Notice of Assessment). This means that if CRA finds out years later that the sale of your home was not reported, they can still assess taxes, interest and penalties owing.
For more information on what qualifies as a principal residence, click here.
If you would like more information or have any questions, feel free to contact us at 780.466.6204, or click here to send us an email.
Thanks to Stephanie Kwan of KWB Chartered Accountants for providing this content.