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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

Are you Prepared for an Audit from Hell? – Part ONE

bookkeeper NewmarketIn early May 2014 I received a call from a long-time client of mine. They just received a call from Canada Revenue Agency (CRA) saying they were being audited for the year 2011. My client is sharp. He didn’t panic or get angry, but simply asked “how do I know who you really are based on a telephone call?” And, “I want your request in a letter before I do anything further”. My client also contacted their CA as they weren’t sure who was to do what, and what was to happen next. Little did we know this would become the Audit from Hell for both my clients and me. Read more

5 Payroll Deductions Required for Special Payments

22036201_sDuring the past few weeks I’ve had a number of clients ask me about the correct payroll deductions for special payments made to employees. Specifically they’ve questioned which payments qualify to have CPP, EI and Tax deductions. A number of these questions came about because they received a PIER report.

PIER is the acronym for Pensionable and Insurable Earnings Review. This report is generated by the CRA after the T4s for the prior year have been processed. The government formulas sometimes disagree with the CPP and EI indicated on the T4 as they relate to the T4 income shown.

The following are 5 payroll deductions required for special payments.

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5 Canada Revenue Agency (CRA) (Re) Assessments You Can Dispute

Do you feel that once you’ve received THE envelope from CRA that it’s the end of the line and you need to pay what they have determined you owe?  Well you don’t have to leave it at that, especially if you feel you have additional information with the relevant facts and documentation that could change their position. Here are the top most frequent 5 CRA (Re) Assessments tax liabilities that arise in my office:

1. Income Tax
2. GST/HST
3. Registered Savings Plans
4. Charities
5. Employment Insurance (EI)

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$1,000 Possible Hiring Credit for Canadian Small Business

4699726_sIf you’re a small business and your total employer’s EI premium paid in 2010 was  less than $10,000 and your total premiums increased in 2011, you could be eligible for this credit. The difference in the premium costs, to a maximum of $1,000, is the basis for this credit.

This is a one time credit that is calculated by Canada Revenue Agency (CRA) when you file your 2011 T4 information return.  There is no application or adjustment required by you, the employer.  As an employer, if you have any outstanding CRA debt, the credit will be applied to it.  And since this is a CRA initiative, it applies to all of Canada.

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WSIB Bill Added To Personal Property Tax

You Can Run, But You Can’t Hide!

bigstock-Tax-Man-Cometh--404466I recently met with a new client whose marriage is on the rocks.  So much so that she and her husband were meeting with a marriage counselor the day after I met with her.  It seems she told him she would take care of his bookkeeping.  She had taken accounting in college and a few years ago worked for a tax return company.  Well it wasn’t done and one of the results was that the Workers Safety Insurance Board (WSIB) added their unpaid bill to their personal Property Tax Bill.

As with most small to medium sized companies in her husband’s particular industry, the economy has had a real impact on their revenue, and profitability these past few years. My client had an accountant complete and file their 2008 personal tax returns and she calculated the GST.  What she failed to do was submit the GST return.  She thought that since they couldn’t afford to pay it there was no reason to send it in.

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Playing Games With Revenue Canada?

13038475_sAre you living with someone, but claiming single status on your personal tax return?

I have a client with a very forgiving and generous heart.  She took in her ex-husband to live in the spare bedroom of her home so their daughter would not have a father living out of his car.  This platonic and completely independent situation lasted for approximately 14 months.  When it came time for him to file his personal tax return he used “their address”.  Canada Revenue Agency (CRA) did one of their matching scenarios and made the assumption that they were actually in a common-law relationship.  The result was a significant blow to my client, resulting in a large tax liability.

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5 Frequently Requested Receipts From Canada Revenue Agency

click on image to enlarge

Does a sense of panic rush through you when you receive that brown envelope from Canada Revenue Agency (CRA) asking you for additional information, and receipts, after filing your tax return?  After preparing thousands of personal tax returns over the years I feel confident in sharing the 5 frequently requested types of receipts the CRA is looking for.

1. RRSP Contributions

If one year you make a large, out of the ordinary, RRSP contribution the CRA will request to see it.  Besides confirming the amount recorded on your personal tax return they will be looking at the date the contribution was made and checking to see if it was a spousal contribution.

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Do You Qualify for Business Use of Home Expense Deduction?

3 Types of Employees That Could Qualify

If you as an employee find that you are allowed to work from home, perhaps you might qualify for the Employment Expense Deduction when preparing your personal tax return.  If you are a commissioned sales person, you could also be eligible to expense some of your home costs.  And to those that are home based and self-employed, there are even more expenses that you can apply to your earned income.

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Canadian Medical Expenses and Tax Credits

310017_sDo you know which medical expenses you can claim on your personal tax return? Most people are aware of the standard medical receipts that can be used, such as;

  • Prescription drugs and medications
  • Dentures
  • Travel Insurance
  • Premiums paid to private health services plans
  • Eyeglasses

 

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