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Changes for Principal Residence Sales in 2017

The Minister of Finance introduced changes to both the rules allowing people to claim the principal residence exemption on the sale of a home as well as the reporting requirements attached. These changes for principal residence sales were meant to address fraudulent claims for the exemption as well as to limit the exemption to residents of Canada.

The eligibility rules are not discussed here as they will only affect persons who are non-residents of Canada. The new reporting rules, however, will affect every Canadian selling a home and claiming the principal residence exemption for that sale. Before the changes, any person who was eligible for the principal residence exemption did not need to report the sale or the gain on the sale to the CRA on their tax returns. This meant that the CRA had no way to track who was eligible for the exemption and what each person’s eligibility was.

The exemption is available in limited circumstances. One of the limits is that only one property may be designated as the taxpayer’s principal residence each taxation year. If you own more than one property or if you rented out your property during some part of the ownership period, the entire gain may not be eligible for the exemption. On a sale, in order to determine what property is eligible for the exemption, or if your rented or formerly rented property is eligible, a series of inquiries must be made. The rules can get complicated and this article is not the place to discuss them.

So, what do the new reporting rules require? If you sold your principal residence in 2016 (or later) or are claiming the exemption on the sale of a property in 2016 or later, the CRA now requires you to report certain basic information when filing your tax return. This basic information includes the date of acquisition (so that the CRA can know how long you owned the property and that those years are now off the table), the proceeds of disposition (how much you sold the property for), and a description of the property that you are claiming the exemption for.

Given the complexity of the rules if you ever owned more than two properties at the same time or if you ever fully or partially rented out the property you want to claim the principal exemption on, it is best to contact a tax professional. You don’t want to make a mistake and end up having to pay interest and penalties on top of additional tax.

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pro-tip

Pro Tip

ACCESSING THE SMALL BUSINESS DEDUCTION IN YOUR BUSINESS

The Small Business Deduction gives businesses a tax deduction on the first $500,000 of income. This saves an eligible corporation around up to $50,000 in income taxes. There are a number of conditions that have to be met to be eligible for this deduction.