Selling a house you lived in may not be tax free
The housing market in British Columbia is still hot and many people have seen the value of their houses and condos increase dramatically. Because of this trend, many Vancouverites have or are considering selling a property. A common misconception among taxpayers is that if you lived in a home for some amount of time, this makes it your primary residence and is therefore exempt from income tax.
The CRA has been taking a close look at British Columbia home sales. Many taxpayers have had the displeasure of getting a reassessment in the mail. In most cases, the CRA will either claim that the residence was not your primary residence and the gain is a taxable capital gain or, worse, that the sale resulted in business income. If that is not enough, in addition to the tax assessed, the poor person will also have to pay penalties and interest.
Before issuing a reassessment, the CRA looks at many factors. One of these factors is whether you have any history, training, or experience selling houses. The more your experience and education connect with the real estate industry, or the more times you have sold a home, the less likely it is to the CRA that the sale was tax free. The CRA will answer your claim that you lived in the house by saying: “just because you used your inventory doesn’t make it your primary residence”.
The tax man will look to see if you had another house or home (whether your own, a family member’s, or a rental unit that you lived in). This can be a house that you keep for a long time and keep moving in and out of. It can be your partner’s home you live at between houses. It can be your parents’ basement you stay in regularly. The CRA also looks at the information available from your utility bills, change in address requests to government agencies and primary companies, and where your mail goes to. All this to see where you live regularly and whether the house you sold was your primary residence or something else.
Note: Articles are for general information only and do not constitute tax advice nor can they be relied upon.
Sam Faris is a Toronto-based Chartered Professional Accountant who practices as an independent consultant on high-level Canadian tax matters and handles disputes with CRA. He has recently published an article a business magazine: HERE.