“The best laid plans of CRA and Men”
In general, many taxation and reporting rules that were designed to deal with specific situations or events are often worded so broadly or written so ambiguously that they end up including many other taxpayers and other unrelated events. Intentions are great when the intended result occurs, but rarely does this happen with Canada Revenue Agency.
A prime example of this are the new Principal Residence eligibility and reporting rules.
The intentions are well known. Many foreign investors were purchasing and selling residential homes and condos in Canada, driving up the prices and reducing inventories of available (not affordable) housing. Many of these homes and condos were re-sold at huge profits. The new rules were meant to reduce the pressure on housing prices by creating a disincentive for non-residents – taxing them on those gains that otherwise were tax free for Canadians.
Remember that the existing rules for claiming the Principal Residence Exemption are very complicated to begin with. Unfortunately, when the new rules became law, they included all kinds of reporting requirements for 2016 and later years, which affect every Canadian, not just non-residents. Anyone who sold any property in 2016, or may sell in the future is affected.
In the past, you could sell your home and not have any obligation to report that sale, even if you made a big profit. For 2016 and on, you must report every sale of property on your personal tax return. You have to record the sale on Schedule 3 and form T2091, even if you think you qualify for the principal residence exemption and owe no tax (the gain is usually tax free if it’s your principal residence).
Those of you who sold your own residence or any other property in 2016 or after, and decide not to report or not to file, will still be caught by these rules and you may lose the principal residence exemption! So we strongly recommend that you contact us if you sold any property in 2016, or think you may be affected by these new rules.
“I didn’t know” is not a valid or accepted response when you get a letter from CRA
The WORKWISE Accounting Team