Answer
The principal residence exemption changes have introduced new reporting requirements for taxpayers. As of 2016, the sale of a principal residence must be reported on Schedule 3 of your income tax return, even if the entire gain is exempt. KWB can help you navigate these changes and ensure compliance with the updated regulations.
Overview
The principal residence exemption changes affect how Canadian homeowners report property sales, even when no tax is owed. Staying informed about these updates helps ensure compliance and avoids potential issues with the Canada Revenue Agency (CRA). This article details the specific requirements and provides practical guidance for reporting.
This guide also includes a labeled real-world hypothetical scenario, demonstrating how these reporting changes apply to a homeowner selling their property.
- Exemption Details: Review how the principal residence exemption operates under current Canadian tax law.
- Reporting Requirements: Learn about the information to report when selling your primary home.
- Common Questions: Find answers to frequently asked questions regarding these tax changes.
Understanding Principal Residence Exemption Changes in Canada
The Canada Revenue Agency (CRA) made a major change to the Principal Residence Exemption that affected Canadians when filing their 2016 tax returns. Regardless of whether the sale is exempt or not, individuals are now be required to report the sale of their principal residence on their personal tax return.
Under the Principal Residence Exemption (PRE), you do not have to pay tax on any capital gain you incur from selling your personal home. This is the tax that would be payable on the increase in value from the time of purchase, up to when it is sold. Your personal home could be a house, cottage, condominium, apartment, trailer, mobile home, or houseboat. If it is a house, the exemption also includes up to 1.2 acres of land. The parking spot is also included if you own a condo, provided the spot is part of the housing unit and is owned by the same person.
In the past, you were not required to report anything if you sold a home that was designated as your principal residence and the gain was fully exempt. CRA changed its policy effective January 1, 2016. This means that if you sold your home on or after Jan 1, 2016, it will need to be reported on Schedule 3 of your personal income tax return.
Key Information to Report for Principal Residence Exemption
- Year of acquisition
- Original purchase price
- Sale price (proceeds)
- Costs associated with the sale
- Description of the property
Even if exempt, a capital gain/loss will also need to be reported on Schedule 3 in the following cases:
- When there is a change in the way the property is being used. For example, if you move to a new home during the year but decide to keep your existing home as a rental property. In this case, you are considered to have “disposed” of the existing property as you are no longer using it for residential purposes.
- If a homeowner passes away, the home is considered to be “disposed” of. It needs to be reported on the individual’s final tax return.
The penalties are high for those individuals who do not report the sale of their principal residence. CRA will charge a penalty of $100 per month, to a maximum of $8,000.
Another major change is that CRA now has the authority to assess individuals at any time. The Principal Residence Exemption is not subject to the normal reassessment period (which is typically three years from the date of your Notice of Assessment). This means that if CRA finds out years later that the sale of your home was not reported, they can still assess taxes, interest and penalties owing.
For more information on what qualifies as a principal residence, click here.
If you would like more information or have any questions, feel free to contact us at 780.466.6204, or click here to send us an email.
Thanks to Stephanie Kwan of KWB Chartered Accountants for providing this content.
FAQ
To help you navigate the recent principal residence exemption changes and their impact, we’ve compiled answers to some of the most common questions homeowners in Edmonton, Alberta, are asking.
| Question | Answer |
|---|---|
| How do recent principal residence exemption changes affect homeowners in Edmonton, Alberta? | Homeowners in Edmonton, Alberta, must now report all home sales on their income tax returns, even if the capital gain is fully exempt under the principal residence exemption. This change ensures compliance with the Canada Revenue Agency and impacts how properties are reported after sale. |
| What are the key changes to principal residence exemption regulations affecting homeowners in Edmonton? | For homeowners in Edmonton, the primary change to principal residence exemption regulations, effective 2016, mandates reporting all home sales on your income tax return. This applies even if the capital gain is fully exempt, a significant shift from prior requirements. Failing to report can lead to penalties and reassessment from the Canada Revenue Agency. |
| What are the current reporting requirements for principal residence sales in Edmonton, Alberta? | In Edmonton, Alberta, all sales of a principal residence must be reported on your income tax return, even if the gain is fully covered by the principal residence exemption. This ensures compliance with Canada Revenue Agency regulations and helps prevent potential penalties or reassessment. |
| Can Edmonton homeowners claim the principal residence exemption for multiple properties in one tax year? | No, homeowners in Edmonton, Alberta can typically only claim the principal residence exemption for one property per tax year. Even if you own multiple properties, only the one you primarily reside in that meets specific Canada Revenue Agency criteria can be designated as your principal residence for that year. |