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Until very recently, Canadian taxpayers and homeowners have not been required, as a result of the CRA’s administrative policy, to report the sale of their principal residences in their personal income tax returns. But times have changed!
On October 3, 2016, the Finance Minister announced new rules that will REQUIRE all Canadian homeowners to report the sale of a principal residence in their tax returns in the year of the sale or they be subject to an extended reassessment period.
For 2016 and later years, individuals must report ALL principal residence dispositions occurring in the year and in later years in their tax returns or be subject to an extended reassessment period in respect of the sale of the home. Taxpayers will be required to complete a principal residence designation – Form 2091 (IND) – with their tax returns for the year in which the house is sold.
As a result of these new reporting requirements and the extended reassessment period, it will be very important for individuals, particularly for those who own more than one residence in a year, to properly track the cost of each residence and determine how best to allocate the principal residence exemption among multiple properties. Properly tracking the cost of the property and maintaining appropriate records such as purchase agreements, receipts and invoices, to support the cost of the home will help minimize any capital gain that may arise.
To summarize, for 2016 and later years, taxpayers who dispose of ANY real estate should ensure that the dispositions are reported in their tax returns in the year of the sale. If the principal residence exemption is being claimed, the taxpayer needs to complete Form T2091 (IND) to designate the property as a principal residence and calculate the amount of any capital gain remaining after the exemption. Form T2091 (IND) must be attached to the taxpayer’s tax return for the year. If the disposition is NOT reported and is subsequently selected for review or audit, the taxpayer would have to pay tax on ANY gain on the property and the CRA will not need to prove any misrepresentation attributable to neglect, carelessness, wilful default or fraud to extend the reassessment period.
If you are planning on selling your home this year, make sure to gather the appropriate data and talk you to business advisor on any questions you may have to avoid any negative income tax consequences!
Barb Carle-Thiesson, FCPA, FCA, ICD.D, TEP, is a Partner and Business Advisor in MNP’s Nanaimo office. Barb brings more than 30 years of experience in providing accounting, tax and consulting services for owner-managed businesses and professionals, including extensive experience working with healthcare professionals. Barb can be reached at 250.753.8251 or firstname.lastname@example.org
Related Topics:Dentists; Personal Tax
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