 Print
Reporting the sale of your principal residence for individuals
10-17-2016
On October 3, 2016, the Government announced an administrative change to Canada Revenue Agency’s reporting requirements for the sale of a principal residence.
When you sell your principal residence or when you are considered to have sold it, usually you do not have to report the sale on your income tax and benefit return and you do not have to pay tax on any gain from the sale. This is the case if you are eligible for the full income tax exemption (principal residence exemption) because the property was your principal residence for every year you owned it.
Starting with the 2016 tax year, generally due by late April 2017, you will be required to report basic information (date of acquisition, proceeds of disposition and description of the property) on your income tax and benefit return when you sell your principal residence to claim the full principal residence exemption.
Previously, the CRA did not require any reporting related to the sale of a principal residence if the property was your principal residence for every year you owned it.
If the property was not your principal residence for every year you owned it (e.g., a different property, such as a cottage, was designated as your principal residence for one of the years during the same period of ownership), Form T2091 (IND), Designation of a property as a principal residence by an individual (other than a personal trust), would have to be filed with the individual’s T1 Income Tax and Benefit Return. The representative of a deceased person would have to use Form T1255, Designation of a property as a principal residence by the legal representative of a deceased individual instead.
You will complete Schedule 3 and file it with your T1 Income Tax and Benefit Return for the year you sell the property. If the property was your principal residence for every year that you owned it, you will make the principal residence designation in your Schedule 3. In this case, the year of acquisition, proceeds of disposition and the description of the property are the information that will have to be reported. Schedule 3 will be modified accordingly. Form T2091 (or Form T1255) will still be required for the designation in the case the property was not your principal residence for all of the years that you owned it.
For the sale of a principal residence in 2016 or later tax years, CRA will only allow the principal residence exemption if you report the sale and designation of principal residence in your income tax return. If you forget to make a designation of principal residence in the year of the sale, it is very important to ask the CRA to amend your income tax and benefit return for that year. Under proposed changes, the CRA will be able to accept a late designation in certain circumstances, but a penalty may apply.
The penalty is the lesser of the following amounts:
1. $8,000; or
2. $100 for each complete month from the original due date to the date your request was made in a form satisfactory to the CRA.
More information on late designations is available on the CRA website under Late, amended, or revoked elections.
The CRA will focus efforts on communicating to taxpayers and the tax community the requirement to report the sale and designation of a principal residence in the income tax return. For dispositions occurring during this communication period, including those that occur in the 2016 taxation year (generally for which the designation would be required to be made in tax filings due by late April 2017) the penalty for late-filing a principal residence designation will only be assessed in the most excessive cases.
Footnotes: Footnotes: This column is presented as a general source of information only and is not intended as a solicitation for business. Mohammed Yasin, CPA,CGA, is the principal of M. Yasin & Co. Inc., Certified General Accountants and has offices in Vancouver & Surrey,B.C.
|