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New Tax Measures for a More Secure Canadian Housing Market


On October 3, 2016, Minister Morneau announced new measures, closing a tax loophole that previously allowed foreign buyers to claim the principal residence exemption when selling a residential property in Canada. The new rule is based on the simple premise that you must live in Canada to benefit from our tax exemptions.

The tax measures announced are as follows:

  • On a disposition of a residence after October 2, 2016, an individual will not be able to designate that property as a principal residence, for years he or she was not a resident of Canada. This measure ensures that permanent non-residents are not exempt from paying tax on any gains recognized on the sale of residential property.
  • Certain criteria must be met in order for a trust to be eligible to designate a property to be a principal residence in a tax year after 2016. Specifically, a trust must be one of the following:
    • A spousal or common-law trust
    • An alter ego trust (or similar trust for the exclusive benefit of the settlor)
    • A qualifying disability trust
    • A trust for the benefit of a minor child of deceased parents

In addition, the beneficiary of the trust (or a beneficiary’s family member) who occupies the residence in the year must be resident in Canada in the year and must be a family member of the individual who created the trust.

Canadian tax exemptions should only be available to residents of Canada. The downside of these changes is in the enforcement; all taxpayers must now comply with new reporting requirements. When a taxpayer disposes of a principal residence, he or she must report the disposition in their income tax return for that year in order to claim the exemption. The Canada Revenue Agency has been given authorization to accept late-filed designations; they have also been given the authority to assess taxpayers beyond the normal assessment limitation period for a tax year (with respect to dispositions of real estate by the taxpayer).

From the looks of things, these new measures will be onerous from an administrative perspective. Taxpayers will have to report their dispositions in order to claim the exemption – there may be grumbling but at the end of the day, the new measures aren’t earth shattering. The task of ensuring compliance will be the issue in that the CRA will have to develop methods of tracking real estate transactions and auditing these transactions to ensure the reporting is complete.

Contact Derek Innis, CPA, CA at 204.775.4531 or [email protected]