For the 70 per cent of Canadians who own a home, it is a place to live, raise our family, and it connects us to our community. Due to Canada’s tax system’s Principal Residence Tax Exemption, when we sell our homes, any increased value or “capital gains” are not taxed if the home has been used as our principal place of residence.
This generous tax break matters to Canadian homeowners. Collectively, we have about $3 trillion in home equity and our homes are often our largest financial asset.
However, starting with our 2016 income tax returns, there are some changes in how homeowners qualify for the exemption.
All home sales, including the sale of a principal residence, must now be claimed on your income tax
Until now, the Canada Revenue Agency has not required Canadians to report on a home sale during tax season. If you sold your home in 2016 or later, you will need to complete a Schedule 3, Capital Gains of the T1 Income Tax and Benefit Return in order to report your sale (you can access the 2016 Schedule 3 forms by clicking here). The following details of your property sale will need to be reported:
• Date of acquisition
• Proceeds of disposition
• Description of the property
The good news is that, in terms of the Principal Residence Tax Exemption, nothing has changed. The same tax benefit is available to anyone who sells their home, provided the property was the principal residence for every year you owned it – even if you use part of your home for business purposes. There is no “new tax” involved – only a requirement that we report the sale details on our tax returns.
When it comes to taxes, not everyone plays by the rules. The Principal Residence Exemption is a very generous tax break and it is occasionally misused by those involved in speculative “house flipping” in order to evade taxes on their profits. In these cases, people were claiming the exemption for homes they owned, but may never have lived in. Reporting these sales allows the government to make sure that only eligible homeowners get the benefit that they are entitled to.
So, if you sold your home in 2016, make sure to report the sale when you file your 2016 tax return. You will still get the same tax break and you will help prevent the misuse of this important homeowner tax benefit.
For free advice on everything related to the sale of your home including the new requirement to claim your principal residence tax exemption on your income tax forms, please cal 604-588-4466.