If you have packed up and sold your Home Sweet Home (also known as your primary residence), you may wish to know the tax implications of this major event of your life. You must disclose the sale on this year’s return, whether you moved down the block or across the country because the Canada Revenue Agency (CRA) needs to be kept up to date.
Before, there was not much you had to do when you sold a property that was your principal residence. But now, both the
designation and the sale must be reported on Schedule 3 of your tax return. Furthermore, unless a person was a resident of Canada when they bought the property, they will not be eligible to claim the principal home exemption in the year they sell it. These changes were made in order to help crack down on shady behavior from non-resident purchasers and real estate vendors.
Information you need to report the sale
The CRA will need just a few details:
- the year of you purchased the property;
- how much you sold it for;
- and a description of the property.
Where to report your sale
Even if the entire capital gain is still tax-free, there will be space on Schedule 3 of your return to declare the sale of your primary residence.
What if you moved out and moved back into your primary residence?
The CRA understands that things can change and that you may need to relocate for a while. If that is the case, you can use form T2091 (IND), which is formally known as the Designation of a Property as a Principal Residence by an Individual.
What happens if you forget to designate the sale as a principal residence?
If you forget to disclose the sale of your primary residence, you can seek a late designation under the provisions for late, amended, or revoked elections. These are only allowed in limited cases, such as when the circumstances of correctly designating the sale were beyond your control. Forgetting to designate can be an expensive mistake, as there is a penalty equivalent to the lesser of the following amounts:
- $8,000; or
- $100 for every complete month that the request is late.
CRA Reassessments
The CRA changed the rules around how long they can wait before reassessing the sale of real estate when it is not reported in the year that it takes place. They have extended the three-year window that existed before, so they now have more time to review the details of real estate sales. This rule applies to any property sales, not just principal residences.
So, if you sold your old home this year and want to claim the principal residence exemption, watch for more space on Schedule 3 of this year’s return.
If you have questions on this matter feel free to reach out to IDM CPA.
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