Sold your home this year? Here's how it could change your tax return.
January 23, 2017
If you packed up and sold your Home Sweet Home (a.k.a. your principal residence), there’s some new things to know when it comes to your taxes. Whether you moved down the street or across the country, the Canada Revenue Agency (CRA) wants to stay in-the-loop, so you’ll need to report the sale on this year’s return.
What is the principal residence exemption?
If you own your home and are living there 24/7, it’s your principal residence in the eyes of the CRA. The exemption means that when you’re ready to sell, you won’t have to pay taxes on any capital gains on the sale, as long as you were more or less living at the property during the whole time you owned it.
Before the new rules, there wasn’t much you had to do when you sold a property that was your principal residence. Now you need to report both the designation and the sale on schedule 3 of your tax return.
Why the change?
There were a few ways that savvy real estate investors could work out a tax benefit from selling a property as their principal residence, even if they didn’t really live there. Now, when someone sells their property, they won’t be able to claim the principal residence exemption in the year they sell it, unless they were a resident in Canada in the year they bought it. This change will help crack down on shady behaviour from non-resident purchasers and real estate vendors.
What info do I need to report the sale?
The CRA will need just a few details: the year of you purchased the property, how much you sold it for, and a description of the property.
Where should I report my sale?
There will be space on Schedule 3 of your return to report the sale of your principal residence, even though the full capital gain is still exempt from tax.
I moved out and then back in. Do I need to declare my home as my principle residence?
The CRA knows that things can change and that you could live elsewhere for a while. If that’s the case, you can fill out form T2091 (IND), formally known as the Designation of a Property as a Principal Residence by an Individual.
What can I do if I forget to designate the sale as a principal residence?
If reporting the sale of your principal residence slips your mind, you can apply for a late designation under the taxpayer relief provisions for late, amended or revoked elections. These are only accepted in a few instances, for example, if the circumstances of designating the sale properly were out of your control. Forgetting to designate can be a costly mistake, as there’s a penalty that’s equal to whatever is less:
- $8,000; or
- $100 for every complete month that the request is late.
The good news? The CRA understands that it might take a little while for taxpayers to catch on. They’ve decided there will be a communication period as people get in the swing of things this year, where the penalty for late-filing of a designation will only be assessed in extreme cases.
Watch out for reassessments.
The CRA has changed the rules around how long they can wait before reassessing the sale of real estate, when it isn’t reported in the year that it takes place. They’ve extended the three-year window that existed before, so they now have more time to review the details of real estate sales. This new rule applies to any property sales, not just principal residences.
So, if you sold your old home this year and want to claim the principal residence exemption, watch for more space on Schedule 3 of this year’s return.