When Ottawa unveiled a tightening of mortgage lending rules last fall, it also implemented a small but important change that will affect hundreds of thousands of tax filers this year.
For the first time, Canadians who sold their homes in 2016 will have to report it to the Canada Revenue Agency, even though any gains remain tax-free if they’ve lived in the properties as long as they’ve owned them.
Basic information related to the transaction, the year of purchase, the proceeds of the sale and the description of the property must now be filled out on income tax returns.
“If you’ve always lived in your home as your principal residence and you sell it in any year, don’t worry, there’s no additional tax to be paid,” said Brian Brophy, a tax partner at Deloitte. “All you need to do is make sure you report it on your tax return.”
The change was part of a suite of measures the federal government announced in October. At the time, the government said it wanted to ensure that the principal residence exemption was used only in appropriate cases.
The home sale is included on the same form where capital gains from investments need to be listed.
Those who don’t report the sale of homes and have their tax returns amended may face penalties of up to $8,000.
If your home was your principal residence for only part of the time you’ve owned it, a calculation is made to determine the portion that may be allowed under the primary residence exemption and what you’ll need to pay tax on.
John Sliskovic, a tax partner at EY’s private client services business, said the change will make it easier for the CRA to catch unscrupulous taxpayers who try to claim the principal residence exemption on more than one property for the same period.
He said the people who have a home and a cottage have to decide which one they want to designate as their principal residence.
“The planning behind that is still the same in that the property that has the greatest accrued gain is the one that you want to take advantage of the principal residence exemption for,” Sliskovic said.
Brophy said before the change, the government had little if any information on what taxpayers were claiming as their principal residence because nothing had to be reported.
“This provides a tracking mechanism … in order for them to get a better view as to the amount of transactions that are out there,” he said.
There were 536,118 homes sold in Canada last year through the Multiple Listing Service, according to the Canadian Real Estate Association.