Changes to Principal Residence Exemption Reporting

Posted on November 2, 2016 by djb | Posted in General Business Articles, Highlights, Tax Tips

On October 3, 2016, the Canada Revenue Agency announced changes to the reporting of the disposition of a property that is designated as a “principal residence”. Please note that the principal residence exemption still exists but the reporting requirements will be more extensive for properties sold on or after January 1, 2016.

Prior Reporting

In the past, no reporting was required if a property that was sold was designated as the principal residence for every year owned. This would result in the entire capital gain being non-taxable.

New Reporting

All property sales will now be reported on your T1 Individual Income Tax Return even if the entire gain is non-taxable.  If the property was designated as the principal residence for every year owned, Schedule 3 – Capital Gains/Losses will be completed.  If there are some years of ownership when another property was designated, Form T2091 – Designation of a property as a principal residence by an individual will be required as well.

Schedule 3 will be modified to include the following information on property sales:

  • Year of acquisition
  • Proceeds of disposition
  • Full address of the property

If a property sale is not reported, the principal residence designation may be denied and the gain would be taxable.  A late designation can be filed if the initial reporting was forgotten or neglected, but penalties may be applied at a rate of $100 per month from the original due date of the return until the filing was completed (to a maximum of $8,000).

The new reporting requirements also apply for deemed dispositions upon the death of a taxpayer and upon a change in the use of a property from personal residence to a rental property or vice versa.

As a reminder, generally only one principal residence can be designated per family. If you have multiple principal residences, please contact your DJB representative to review planning opportunities.

If you have any questions on these changes, please contact DJB’s tax team for further information.

Article written by: Derek Smith, BAcc, Jeremy Doan, MAcc, CPA, CA & Jodi Lycett, CPA, CA

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