Principle Residence Exemption – Reporting of Sale to CRA

Sold Home For Sale Sign in Front of New House

Last week Finance Minister Bill Morneau announced a number of changes in an effort to limit foreign money into Canadian real estate and ensure borrowers can afford the mortgages they want to take on.  One of these includes reporting the sale of residences to the CRA and including any capital gains.

The 3 most discussed changes are:

  • Effective October 17, 2016 there is a stress test used for approving high-ratio mortgages, that will be applied to all new insured mortgages
  • Effective November 30, 2016 new restrictions will be imposed in providing insurance for low-ratio mortgages
  • The launch of consultations regarding lender risk sharing

But I think the 4th item, also effective in 2016, is what everyone selling a home in Canada should be aware of:

  • Previously when selling your principal residence any financial gain was tax-free and it was not necessary to report the income on the sale. Now, the capital gains tax is still waived, but the sale of the primary residence must be reported to the CRA when filing your personal tax return.

You will need to supply to CRA:

  • Date of purchase
  • Proceeds of disposition
  • Description of the property

Why the changes?

  • Ottawa is responding to extensive media reports indicating foreign investors are flipping homes in Canada and falsely claiming the primary residence exemption
  • Ensures families only claim an exemption on one home a year, and the home owners must live in the property
  • Certifies that if an individual was not a resident of Canada in the year they purchased the residence, and they disposed of that property after October 2, 2016, they are not eligible to claim the exemption for that year

This is also a fact and history-gathering move for Ottawa.  Did you sell a cottage during one of the years, and not pay tax on the capital gains, while you were claiming another address as your principle residence? It could be also be a way flagging a possible “lifestyle audit”.

Do you think this change will curtail foreign investment, or homeowners trying to claim more than one property as a personal residence? Or do you have other concerns regarding this change? I’m interested in hearing your thoughts.

You can  connect with me by clicking the contact tab at the bottom of the screen if you are reading this post on the website or you can leave your information in the form of a comment right here on the site.

Until next time,

Maureen

The Montana Group – Offering Bookkeeping Services for Realtors

Newmarket bookkeeping services for realtorsAre you a Real Estate Agent in York Region? In this busy real estate season, do you struggle with filing your own paperwork on time to avoid government penalties? Do you have a solid handle on your financial position? Did you know The Montana Group offers excellent bookkeeping services for Realtors?

In a May 9, 2014 Financial Post article I was surprised to learn that in the first quarter of 2014 the number of people selling real estate reached 108,706 according to the Canadian Real Estate Association. That’s one realtor for every 245 Canadians over the age of 19! The article also mentioned that there were almost as many people selling houses as making them. So what else do I know about Realtors and Numbers? Read more