When you sell your principal residence, or when you are considered to have sold it, usually you do not have to report the sale on your tax and benefit return, and you do not have to pay tax on any gain from the sale. This is the case if you are eligible for the full income tax exemption (principal residence exemption) because the property was your principal residence for every year that you owned it.
Starting with the 2016 tax year, generally due by late April 2017, you will be required to report basic information (date of acquisition, proceeds of disposition, and description of the property) on your income tax and benefit return, when you sell your principal residence, to claim the full principal residence exemption.
If you fail to report the sale of a residence in 2016 or later years, you won’t be entitled to the personal residence tax exemption. If you did not know or forget to designate a property as your principal residence in the year of sale ( for 2016 or later years) you should ask CRA ( Canadian Revenue Agency) to amend your tax return that year. CRA will often accept a late designation but penalties could apply (the penalty could be $100.00 for each complete month the designation is late, or $8,000.00, whichever is less).
The onus is on you, or your tax adviser, to understand the principal tax rules. They are complex and even if you have not sold your residence, you might be deemed to have sold the place in certain situations (if you change all or part of your residence to, or from, a rental as a whole or of rooms or business operation, as an example), which will require you to report to CRA just the same. Keeping and tracking all capital and maintenance receipts and invoices for your property may be of benefit in case the CRA deems you can’t fully shelter any gains on your property.
Like most new government rules that effect housing in Canada, the understanding can be limited. These new CRA regulations are specifically designed to catch people that are not using the house as a personal residence, or that are flipping houses for a profit, and not declaring the income gain from this practice. It is a widespread concern of lost tax revenue, and the CRA can go back and reassess anyone they feel has not made a proper declaration of personal residence.
If you have any questions, or have a topic that you would like addressed, please email me or call or text 519 383 2566.