New tax rules. You MUST report your principal residence sale!
For Canadians who are planning to release their homes to the highly competitive real estate market, they need to be aware of the tax implications of the recent regulatory changes implemented by the federal government.
It has long been accepted wisdom across Canada that a homeowner selling his or her “principal residence” did not have to report anything on their tax return for the year of disposition. While the Income Tax Act requires the disposition of every capital property to be reported on one’s tax return, including principal residences, the longstanding administrative position of the Canada Revenue Agency (CRA) was far more lenient in allowing taxpayers to not report the sale – at all – as long as the entire gain was sheltered by the principal residence exemption.
That era has come to an end with the October 3 Notice of Ways and Means Motion. For taxation years ending on or after October 3, 2016, any sale of a principal residence must be reported in the seller’s tax return for the year of sale. This is true even if the entire gain is fully protected by the principal residence exemption. The first implementation of the new rule will require individuals who sell a home at any time during 2016 (even before October 3, 2016) to report the disposition in their 2016 tax return.
So, if you sold a home earlier this year, you'll have to provide basic information including the year you bought the house, how much you sold it for and the house address information. You now need to report this on the Schedule 3, Capital gains of the T1 Income tax and benefit return.
Doing so will have a significant effect on one’s taxes.
As long as you are designating your home as your principal residence for all the years you owned it, you don't have to pay tax on the profit of the sale, thanks to the principal residence exemption (PRE).
Just remember that you can only designate one property as your principal residence for a particular year. So if you own a home in the city and a cottage up north, only one of these can be considered your principal residence.
And what about residents who are not able to fulfill these stipulations for one reason or another?
If you can't designate the property as your principal residence for all the years you owned it, then you may need to pay tax on a portion of the sale. You will need to use form T2091 (IND), Designation of a property as a principal residence by an individual (other than personal trust) to determine how much tax you will have to pay.
Are you looking to buy a property? If you like, I can tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much I could save you right now if you have an existing mortgage.
Until next time,
Your mortgage expert Evgeny Kamenskiy