Principal Residence Exemption – New Reporting Requirements
As you may have heard, new rules have recently come into effect that may not only have a stabilizing effect on the housing market in Canada but also usher in new Canada Revenue Agency (“CRA”) reporting requirements.
Until recently, when an individual sold their home, they did not have to report the sale on their income tax return to take advantage of the principal residence exemption. However, on October 3, 2016, the Canadian government announced that, starting with the 2016 taxation year, the sale of a primary residence must be reported to the CRA to receive the benefit of the principal residence exemption. This new reporting requirement will apply to any sale that took place on or after January 1, 2016.
The principal residence exemption is a benefit that provides a vendor with an exemption from capital gains earned on the sale of a property that has been used as their primary residence. The exemption will apply for each year the property was designated as their primary residence.
With the new reporting requirement in place, to benefit from the principal residence exemption, the CRA will only allow the principal residence exemption if the sale and designation is reported. Accordingly, estate trustees and tax professionals should pay careful attention during the preparation of income and terminal tax returns to ensure compliance with this reporting obligation.
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