From January 1, 2016 on, you will be required to report the sale of your primary residence to Canada Revenue Agency (CRA). This isn’t a new thing; we were always supposed to be doing this, but now there are repercussions if we don’t. Nothing has changed with regards to being exempt from paying tax on any gains on principal residences, but this plays more of impact on those who own multiple properties. For example, if someone owns a cabin at the lake, or that vacation home down in Phoenix, or that condo their son lives in while he goes to University in addition to their own home, things could a little more complex. One should consult with their accountant to discuss which property they should designate as their principal residence (probably the one that has appreciated the most in value so it is exempt if possible).
WHY ARE WE REQUIRED TO REPORT THIS NOW?
The federal government will be penalizing anyone who doesn’t report the sale of their principal residence to a tune of $100 every month it’s late to a maximum of $8,000. It’s meant to reduce tax evasion and to take some steam out of overheated housing markets by closing loopholes that were taken advantage of in the past. This way, CRA can better track profits and seek patterns in those selling more often such as quick flippers and serial builders.
WHERE DO YOU REPORT YOUR SALE?
Schedule 3 on your T1 Form, you will report:
- the date you took possession of the property
- the date you sold it
- how much you made on the sale
- a description of the property
WHAT IS CONSIDERED A PRIMARY RESIDENCE?
- Any property owned or occupied by you or a family member at any time in a given year could be designated as a principal residence. You cannot designate two properties as primary residences for the same years.
WHAT OTHER REASONS WOULD I HAVE TO REPORT?
Under the Income Tax Act, “you can be considered to have sold all (or part) of your principal residence even though you didn’t actually sell it” (Jamie Golombek, CPA, CA, CFP, CLU, TEP is the Managing Director, Tax & Estate Planning with CIBC Wealth Strategies Group in Toronto). You need to report if:
- you have changed your place (or part of it) into a rental or business or vice versa
- if you have gifted your home
SELLING A PROPERTY THAT IS NOT CONSIDERED A PRIMARY RESIDENCE?
- Closely track all capital improvements to adjust the cost base of your property
- Consult your accountant to best protect your gain and to ensure that you are filing properly
For more information about this subject, check out these articles.
Global News: Did you sell your home in 2016? Let the CRA know or else… Erica Alini
Money Sense: 8 questions about the principal residence tax Romana King
Financial Post: Converting your main residence to a rental? Jamie Golombek
THE JC REALTY TEAM strongly recommends consulting with a certified accountant when filing your income taxes to ensure that you are abiding by the Income Tax Act. Don’t have an accountant? We can refer you to one.