The 2016 tax deadline is fast approaching, and recent home sellers should take note of a new rule introduced by the Federal Government last year.
Canadians now have to report the sale of their principal residence on their tax return to the Canada Revenue Agency.
The sale is still exempt from the 50% capital gains tax provided it meets all of the guidelines outlined by the CRA, but previously the sale of a principal residence did not need to be flagged; however, home sellers are now required to provide details of the sale – including the address, the year it was purchased and how much it sold for – on their tax return form.
Although the administrative change wasn’t announced until Oct. 3, it applies to all sales that took place in 2016 and moving forward.
Read about the rules on the CRA website
· The penalties for not reporting are steep! Failing to report the sale of your principal residence carries a hefty price and you may even lose your exemption and be forced to pay the 50% capital gains tax on the sale.
· There are new rules for non-residents too. In the past, non-residents were able to use the principal residence exemption so long as they had a family member – such as a spouse or a child – living in the home, but this no longer applies. The registered owner must physically be residing in the home to qualify.
· New immigrants can be taxed on the sale of a home outside of Canada, and are taxable on any gain that has accrued since becoming a resident of Canada. This means any rise in the value of a home before becoming a Canadian resident is exempt from capital gains tax, but any increase since that date is still fair game.
· If you are renting out a portion of your home, the sale may not be fully tax exempt. If you are only renting out a room, you can still claim the principal residence exemption on the sale, however if you have a self-contained suite in your home that provides income, this portion is not tax exempt.
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