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Have you moved in 2016? Learn about tax changes so you don’t pay more than you should
The Principal Residence Exemption has long been a huge tax savings to Canadians. It allows a person to be exempt from tax on capital gains if they’re selling their primary home. In the Liberal’s new budget, there have been some changes to the Principle Residence Exemption that could affect you in the 2016 tax year.
Limits to the Principal Residence Exemption
The Liberal government is placing limits to the principal residence exemption. They have indicated that it will only be available to Canadian residents and trusts. For all non-residents or foreign owned homes that have sold properties and have gains as a result of the sale, they will now be considered taxable. The intention of introducing these restrictions is to cool down the current hot housing markets in Vancouver and Toronto.
Reporting on your Tax Return
If you are presently a Canadian resident, the rules of having the tax exemption will not change. However, you are now required to report the sale of your house on your personal tax return. If you fail to report the sale of your property, the Canada Revenue Agency has introduced some significant consequences:
- Canada Revenue Agency may allow you to go back and report it and not be taxed on the gain. However, there will be a $100 per month fine with a maximum fine of $8,000.
- Canada Revenue Agency may not allow you to adjust your tax return to include this information. Thus, any gains on the sale of your house could be taxable.
The normal period for the Canada Revenue Agency to assess a tax payer is three years. However, the reassessment period for unreported sales of principal residences will now be extended indefinitely.
Definition of Principal Residence
This seemingly small change will give Canada Revenue Agency auditors new audit leads, and will undoubtedly give rise to many more homeowner audits and reassessments. Taxpayers must ensure that the principal residence that they are reporting is accurate and falls into the definition of principal residence. This new reporting requirement will allow the Canada Revenue Agency to determine whether taxpayers are claiming multiple principal residences, a vacation home, or potentially if it was a “flipped house” and was only held for a short period of time and thus not eligible for the Principle Residence Exemption
These rules will apply to all homes sold in the 2016 calendar year and going forward. If you have any questions about how to properly report the sale of your home, please contact us directly.
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