The Latest Principal Residence Exemption Rule Affects Every Canadian Homeowner
You’ve sold your home and there’s lots of financial matters on your mind – legal fees, moving expenses, renovations. Well, get ready to add one more thing to the list – reporting the sale of your home on your personal income tax return.
CRA’s new tax reporting rule
On October 3, 2016, Finance Minister Bill Morneau announced a change to Canada Revenue Agency (CRA) reporting requirements for the sale of a “principal residence”. For taxation years ending on or after October 2, 2016, any sale of a principal residence must be reported in the seller’s personal tax return for the year of sale. These changes target foreign investors in an effort to ensure that they abide by current Canadian tax rules – which makes sense. However, the reprocussion is that this new rule will also affect every Canadian homeowner.
Why the new rule
Actually, it’s not exactly a new rule – rather it’s more of a stricter adherance to an existing one. Why do we say that?
For many years, Canadians have benefitted from the Principal Residence Exemption (PRE) when it applies to the sale of their principal residence, while not entirely grasping the full compliance expectation or the full complexity of the PRE rules. The CRA has long had an administrative policy that allowed taxpayers not to report anything on the sale of their principal residence – as long as the entire gain was sheltered by the PRE. This has led to some confusion and unintentional non-compliance. Some taxpayers were under the impression that, because of the PRE, there was no tax on the sale of any residential property owned by them or their spouse.
However, those days of “report nothing” have come to an end.
What this means for Canadian homeowners
Please call us any time if you would like to discuss this in further detail. Also, you can read more directly on the CRA website: http://www.cra-arc.gc.ca/gncy/bdgt/2016/qa11-eng.html?from=timeline&isappinstalled=0