Important Reminder for Sellers
With tax season upon us, this is an important reminder: if you sold your home in 2018, you must report the sale of your principal residence on your tax return. The following is from an article we published previously.
On October 3rd, 2016 the Government announced a change to the reporting requirements. From the 2016 taxation year and thereafter, when you principal residence, or when you are considered to have sold it, “it must be reported to [Canada Revenue Agency] CRA in order to qualify for the tax exemption.”
Why the Change?
As reported in 2016, the intent of this mandatory reporting, according to Finance Minister Bill Morneau, is to:
“Improve tax fairness for Canadian homeowners,”
Improve compliance and administration of the tax system, and
Close this loophole thus preventing foreign investors from flipping homes and fraudulently taking advantage of the capital gains exemption.
To be clear, reporting the sale of investment property and payment of capital gains tax has always been a requirement. But because some have evaded their tax obligations, Canadian residents are now required to report all sales, including their tax-free principal home.
How and What to Report
On the sale of your principal residence, you will be required to complete Schedule 3 and file it with your income tax and benefit return for the taxation year in which the residence has sold. This form will ask for the year the home was acquired, the proceeds of the sale, and a description of the property. Of course, you must own the home, you and your family must ordinarily inhabit it, and you must designate it as your principal residence if the property was your principal residence for every year that you owned it. Understand that you can have only one principal residence in a particular year.
It is likely that requiring the home’s description helps determine its use as a residence and any portion that may have an investment or commercial application.
For sales in 2017 and later, you also have to “complete page 1 of Form T2091 (or Form T1255) if the property you sold was your principal residence for all the years, or for all but one year, that you owned it.” As well, a late filing might raise a red flag and result in a possible audit.
Penalties for Failing to Report
CRA will only allow the tax exemption if you report the sale and the designation, as your principal residence in your tax return.
So what if you forget to Report the Sale?
If you forget to report the sale, you must amend your return though a penalty may apply comprised of $100 “for each month from the original due date to the date your request was made” or $8,000 whichever is less. So claim your exemption and avoid any penalties or even a possible audit by reporting your sale.