With a record-setting volume of house sales, many home owners are smiling. Many real estate speculators claim the house as their principle residence and make a lot of money tax free. Up until now, you did not have to report the sale of your home on your income tax return nor did you have to pay tax on the capital gain as long as it was always your principal residence. This policy changed in 2016 so that if you sell your principle residence, you must report the description of the property on your income tax return. Recognizable targets are those who sell properties that may not qualify as a principal residence such as:
As of 2016, CRA will only allow the principal residence exemption if you report its sale and designation in your income tax returns. If you do not do this in the year of the sale, you must amend that year’s income tax return. CRA may accept a late designation with a penalty that will be lesser of the following:
Further, the “plus one rule” (allowing residents to eliminate the full gain if they own a different home for the first part vs. the last part of a calendar year) has been changed so that if you were not a resident in Canada when you acquired the principal residence, you are not allowed to claim the exemption for that year.
The new rules will also apply for deemed dispositions, which refer to the disposing of a property that you did not sell. For example, a change in use of the property:
When you change a property’s use you have to report the disposition and designation as the principal residence or report the capital gain or loss. Also, the reassessment period for unreported dispositions will now be extended indefinitely, regardless of why the taxpayer failed to report the disposition. That means, CRA can audit you indefinitely.
Published on Post City Magazine’s Jan 2017 issue of the North Toronto and Bayview Post.