Until now sellers of a principal or main residence, had been able to do has they saw fit (when it came to selling and moving). There was nothing to be declared or reported and one could do what they pleased with gains. That now has changed.
New Changes in Reporting Principle Residence
In October of this year (2016) Canada Revenue Agency announced that we will be required to report the sale of our principal residence for any sale occurring on or after January 1 of 2016. This will need to be done on our tax returns. Penalties may apply and they can be significant.
CRA Reason for Property Sale Reporting Changes
The reason behind this according to Canada Revenue Agency is to close tax loopholes regarding the capital gains exemption on the sale of the principal residence. Part of it has to do with determining if the residence is truly the principal one that the owner(s) have occupied for every year that they have owned it. It addresses the ownership of residential property by non-residents including foreigners.
The rationale put forward is that it will take into account one of the concerns of middle class families dealing with housing affordability and high debt. Other changes are also being incorporated for this including a revamped Canada Child Benefit and more infrastructure spending. All of this has to do with the federal government’s promise to grow the middle class.
Non-Compliance Penalties in Real Estate
If you fail to report the sale you should file for an amendment of your T1 Return as fast as possible. Failure to do so may result in an $8,000 penalty or $100 for each completed month after your return was due – whichever is less. Regardless, we are looking at some serious money.
The reporting of the principal residence will be done on a modified Schedule 3. The T2091 and the T1255 forms will both be modified as well to continue accommodating the reporting of non-principal residence sales.
Required Tax Return Information
The required information will include the
- date the property was purchased
- a description of the property and what the proceeds are on the sale of the property
The rules will not only apply to properties actually sold but those deemed to have been sold such as on the death of a person (Revenue Canada deems a property to be sold upon the death of the owner). Trust ownership and benefits will also be carefully scrutinized as will the residency status of beneficiaries of residences.