Reporting Requirements on the Sale of a Principal Residence

The Government announced an administrative change to Canada Revenue Agency’s reporting requirements for the sale of a principal residence on October 3, 2016. This was to address perceived abuses of the principal residence exemption.

When you sell your principal residence or when you are considered to have sold it, usually you do not have to report the sale on your income tax and benefit return and you do not have to pay tax on any gain from the sale. This is the case if you are eligible for the full income tax exemption (principal residence exemption) because the property was your principal residence for every year you owned it.

Starting with the 2016 tax year, generally due by April 2017, you will be required to report basic information (date of acquisition, proceeds of disposition and description of the property) on your income tax and benefit return when you sell your principal residence to claim the full principal residence exemption (PRE).

• In October 2016, the federal government introduced legislation intended to curtail certain perceived abuses of the principal residence exemption (PRE).
• These amendments included several changes that impact the reporting of, and computation of, the PRE in respect of dispositions of principal residence properties occurring on or after January 1, 2016. In particular, the PRE will be denied unless information is reported on your tax return.
• Additionally, an important change that could impact certain trusts holding a principal residence property was also announced.
• In respect of the new changes impacting trusts, these amendments added new criteria to the eligibility requirements in respect of what types of trusts may be entitled to designate a property as a principal residence.
• These new eligibility requirements apply to a trust’s disposition of a principal residence occurring in a trust’s taxation year commencing on or after January 1, 2017.
• Specifically, for years after 2016, only a spousal or common-law partner trust, an alter ego trust (or a similar trust established for the exclusive benefit of the settlor during their lifetime), a qualifying disability trust, or a trust for the benefit of a minor child of deceased parents will be allowed to designate a property as a principal residence for the purpose of the PRE.
• Consequently, any gains accruing after 2016 on real property held by non-qualifying trusts will be taxable and will not be sheltered by the PRE.

If the property disposition is not reported accurately or timely, the exemption could be denied. CRA could impose a penalty of $100 per month upto a maximum of $8,000 depending on the circumstances.