The decision to purchase your home is one of the most important decisions you will ever make, and will also be one of your largest investments. Done right, it can also be one of the most exciting and fulfilling times in your life! Kari Calder a saskatoon Realtor with Century 21 Fusion is there to help you through the process, and provide you and your family with the peace of mind that comes with knowing that you have a realtor working with your best interests in mind.
The new tax implications of selling your home
At the beginning of this week, Finance Minister Bill Morneau introduced changes to the current tax model around selling your primary residence. This, along with the new mortgage rules is an attempt to ensure foreign investors abide by our current tax laws. Although these changes are focused on foreign investors, the changes will also have an affect on those Canadians who inadvertently did not pay tax when selling their principal residence.
In the past, many people who sold their homes did not report it to the government due to the principal residence tax exemption. CRA has not required you to report the sale if the property was your principal residence and no taxes was owed. This is the part that is changing.
The CRA is now requiring you to report every sale on your principal residence whether you owe tax or not. This is in effect for any properties sold in 2016 and now going forward. You will have to provide the date of purchase, a description of the property, as well as the proceeds of disposition ( the amount you sold your home for) on Schedule 3 on your 2016 tax return.
Here’s another important part to note. If you fail to report the sale in 2016 or going forward, you won’t be entitled to the principal residence tax exemption. If you forget to designate a property as your principal residence in the year of the sale, you could ask CRA to amend your tax return for that year. They likely will do so for a fee.
The onus is placed on the homeowner to understand the rules. What can you do going forward?
- Ensure you’re filling out a Form T2091 to designate a property as your principal residence.
- Talk to your accountant if you have any questions about whether or not your real estate sale was considered the sale of a principal residence (for example, adding or removing a suite to the home you live in may require you to report even if you haven’t sold)
- You’ll also want to track the cost of capital improvements you make to your residence going forward. Keep your receipts! This could save you money later on taxes if it turns out the sale of your property is no longer qualified under the principal residence tax exemption.