On October 3, the Canadian government changed the way taxpayers must report the sale of their principal residence.
Previous to the 2016 tax year, the sale of a taxpayer’s residence did not need to be reported to Revenue Canada so long as it was being claimed as that taxpayer’s principal residence in every year that it was owned. In other words, not declaring the sale of the residence resulted in the default claim of that residence being the taxpayer’s principal residence, and thus any capital gain on the disposition was tax-free.
Beginning in the 2016 tax year, the disposition of ANY residence (including a taxpayer’s principal residence) needs to be reported in order for gains resulting from that disposition to be shielded from tax. In other words, a taxpayer needs to report the disposition of his principal residence to the CRA, or that disposition could end up triggering taxable capital gains. The assumption will no longer be in the taxpayer’s favour.
It is to be noted that this is not so much a change in tax treatment as it is a change in reporting requirements. So long as the paperwork is filed in an accurate and timely fashion, taxpayers will be shielded from the effects of this procedural change.
The CRA plans to concentrate its efforts on publicizing these changes to the real estate industry and individual taxpayers so everyone is aware of the new reporting responsibilities, but in the case of the most egregious reporting failures, the CRA reserves the right to impose penalties of $100/month for late declarations, up to a maximum fine of $8000.
For more information, don’t hesitate to contact your accounting professional or your Deakin Realty broker.