Reporting The Sale Of Your Home On Income Tax Starts in 2017 for 2016

 

The sale of your primary residence is still tax exempt (usually – some exceptions are listed below).

However, starting with the 2016 tax filing which is required by April 2017, you are now required to report the sale of ALL properties, including your personal residence.  (They’re calling this “an administrative change”.)

If you require information about when you bought or sold a property in the Ottawa area we’d be happy to provide that to you.  We don’t have access to all of the purchase details such as adjustments at closing that your lawyer would have given you.  (We can usually look this up even if you weren’t our client, though we won’t have as much detail.)

For your personal primary residence, they’ve added a new page to Schedule 3, and it’s quite simple if you’ve used your home exclusively as your primary residence:  a checkbox, the property address, when you bought it, and what you sold it for.  However, my guess is that they will be asking for more information in future years, so it’s better to keep your purchase information and details of improvements available in case they’ll be required.

From the Canada Revenue Agency website page for “Reporting The Sale Of Your Principal Residence“:

“When you sell your principal residence or when you are considered to have sold it, usually you do not have to report the sale on your income tax and benefit return and you do not have to pay tax on any gain from the sale. This is the case if you are eligible for the full income tax exemption (principal residence exemption) because the property was your principal residence for every year you owned it.

Starting with the 2016 tax year, generally due by late April 2017, you will be required to report basic information (date of acquisition, proceeds of disposition and description of the property) on your income tax and benefit return when you sell your principal residence to claim the full principal residence exemption.”

Purchase cost, purchase expenses, and the cost of improvements are not required to be reported when it has been used exclusively as your personal residence for the entire time that you’ve owned it.

You can designate any dwelling as your primary personal residence, but only one per person (or couple).  It can be a cottage, and it can be located in another country.  You can also change the designation without selling the property, such as deciding that your cottage becomes your principal residence because you are renting out your home in the city.  They do have a formula for calculating the taxable capital gain based on how many years it was solely your residence compared to the number of years as a rental.

And what if you rent out a room or a part of your home?  You will have to calculate capital gains if it is a separate unit, like a nanny suite in the basement, but not if it’s a small portion of your home.

An interesting site called www.TaxTips.ca says in their article called “Change In Use Of a Residence“:

When you rent out a part of your home or cottage, you are considered to have changed the use of that part of the home from personal-use to rental property.  Depending on the circumstances, when you eventually sell your home, or have a deemed disposition because you stop renting part of it, you may have to report a capital gain on the portion of your home that you rented out.

The CRA Rental Income Tax Guide, T4036, and S1-F3-C2: Principal Residence (see partial changes in use) state that if all of the following conditions are met, you will not be considered to have a change in use:
– the part of the home used for rental purposes is small in relation to the size of the whole property,
– you do not make any structural changes to the property to make it more suitable for rental purposes, and
– you do not claim any capital cost allowance on the part you are using for rental purposes.

If all of the above conditions are met, you will not have to report a capital gain when the property is sold or the rental is stopped.  Otherwise, you will have to report a capital gain based on the portion of the house that was rented.

NOTE:  Summations and “plain English” articles such as this are very helpful for non-accountants like me.  However, you should use an accountant or refer to the CRA website to confirm that the summation is correct.  (Interestingly, the CRA takes no responsibility if you call and an agent gives you incorrect information, or if one of their publications is incorrect.  They say that the only real source for information is the Income Tax Act…)

 

 

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