Why the CRA changed the principal residence tax exemption, and how it may affect the sale of your home.
When a Canadian sells his or her home, a capital gain is realized. Under Canadian law, such a profit would generally be subject to capital gains tax; however, if the home in question was the Canadian’s principal residence, than the homeowner may be completely exempt from that tax.
What exactly is a principal residence? There are 3 basic requirements for a home to be considered a family’s principal residence:
- It must have been inhabited by the family during the year
- It must not have earned any income
- There can only be 1 principal residence per family unit (including children under 18 years of age)
Of course, there are additional requirements that may come into play; for instance, there are restrictions on how much of your land can be exempted from the capital gains tax.
In 2016, the CRA enacted changes to the principal residence tax exemption. While many homeowners are still eligible for complete tax exemption from the sale of their principal residence, as before, all homeowners are now required to report basic information about the sale on their income tax and benefit return.
This is primarily a change in compliance procedure; however, this adjustment will have a significant impact on many homeowners. For example, the CRA will take a closer look at factors such as length of habitation during the year, or multiple homes sold in a short span of time, to determine whether the residence in question actually qualifies for the exemption. House “flippers,” foreign buyers, and serial builders will likely be the ones most affected by this change.
Compliance with this new regulation is a vital way to avoid penalties and unnecessary headaches down the road. If you are looking for professional assistance in the sale of your principal residence, or any other property, contact us at SatLaw to learn more about how we can make the real-estate transaction process smooth and stress-free.