The Canada Revenue Agency (CRA) is cracking down on taxpayer’s principal residence exemption claims for the sale of their Canadian real estate. Though reporting requirements have long been in place, before the 2016 tax year they largely went unenforced.
When are capital gains taxes required for the sale of a property?
These are the three most common situations:
The home you sold is the only property you and your spouse owned and you never rented it out.
- There should be no capital gains tax on the sale since it was your family’s only principal residence for the entirety of your ownership. You are still required by CRA to report this on your tax return in order to claim the principal residence exemption.
- When you sell your home, your accountant will need to report the price of the property at the time of purchase and sale as well as the dates of both transactions.
Between you and your spouse your family has owned more than one property during the same time period, but they were for personal use (a cabin, ski home, etc.) and were never rented out.
- You will need to decide which property you would like the principal residence exemption to apply to when it is sold. In most cases, you should use the exemption for the property with the largest growth in value.
- When you sell any of these properties, your accountant will need the same information as above in addition to the value of your other properties.
You and your spouse have owned more than one property, one or more of which were rented out.
- If you sell a rental property that you have never lived in, you must pay capital gains tax. Your accountant will need the purchase price and date, sale price and date, and current value of your other properties.
- If you lived in the property in the past but moved out and subsequently rented it out, the situation requires more analysis. When you sell the property, your accountant will need to know the year you moved out and the valuation of the property on the moving date. Capital gains taxes could be due on the change in the value of the property between the time you moved out and sold it. You might be able to reduce these taxes by filing a tax election, but there could be extra costs if the election was not filed in the tax year you moved. Depending on the increase in the property’s value, you may want to late file this election.
Claiming the principal residence exemption
In order to properly claim an exemption to capital gains taxes on the sale of a principal residence, your accountant will need copies of the Statement of Adjustments for both the purchase and sale of your property. These documents are available through your real estate lawyer. Alternatively, you can request your home valuation from the Land Titles office for the years of purchase and sale.
Every situation is unique. Please make sure you consult your tax professional so that you get the advice that’s right for you.
Jacob Van Gaalen, BBA is a Senior Account Manager with Loren Nancke & Company. As a senior accountant with a background in Business and IT Administration, his relentless eye for detail is fairly legendary. You can reach him at 604-904-3807 in Vancouver, British Columbia.