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The Sale of Principal Residence

Reporting Requirements For Individuals

Date: October, 2016

On October 3, 2016, Canadian Government made changes as it regards to reporting requirements for revenue agency for the sale of a principal residence.

As a principal home/residence owner, which you are eligible or entitled to the full income tax exemption, you don't have to report returns and gains made from such sale. You don't have to pay tax just because you sold your principal residence. Reason being that such sale is your principal residence.

Reverse became the case from 2016 to the end of April 2017. When you sell your principal residence from the date mentioned above, you will have to report and make the account for the time you acquired the property, description of the property and proceeds from the sale of the property. Only when you provide this information on your income tax will you receive full principal residence exemption.

Frequently Asked Questions About Principal Residence

  1. What is the principal residence exemption?
  2. Principal residence exemption is immunity from income tax benefit. This means it protects you from paying tax when you sell your principal residence. So far as your property is a principal residence with principal residence exemption you don't pay income tax when the property is sold.

  3. Any Changes in reporting of the sale of a principal residence?
  4. All gain made from the sales of a principal residence on or after 1st January 2016 is meant to be reported in the income tax. Unlike before when the principal residence exemption covers the owners of such residence.

  5. How do I report the sale of my principal residence on Schedule 3?
  6. To report the sale of the principal residence on schedule 3, you will fill Schedule 3 form together with your T1 Income Tax and Benefit Return for the year you sold the property. Should in case the property was yours for years, you will have to indicate the year you acquired it, proceeds from the sales and proper description of the property.

    In a situation where you are not the owner of the property initially before sales, you should also file Form T2091 (or Form T1255).

  7. What should I do if I forget to report the designation of the principal residence on my income tax return for the year of the sale when I want to claim the principal residence exemption?
  8. In a scenario like this, you have to report to CRA to amend the income tax and benefit return for the year the sale was made. Although the amendment by the CRA attracts some price.

    Between $100 + $8,000 for each entire month from the original due date to the date your request was made in a form satisfactory to the CRA. Late filing of reports also attracts some penalties but this time in an excessive case.

    On the other hand, CRA will focus efforts on communicating to taxpayers and the tax community the requirement to report the sale and designation of a principal residence in the income tax return.

  9. What do I report when I sell my principal residence if I used part of it as my principal residence and another part for my business or to earn rental income?
  10. It is part of the CRA practice to decide if all properties should be considered principal residence if conditions listed below are met:

    • The income-producing use of the property is secondary to the primary use of the property as a residence;
    • There is no structural change to the property; and
    • No capital cost allowance (CCA) is claimed on the property.

    When these conditions are not met, you are left with no option than to split the selling price of other properties and that of the principal residence.

    CRA made provisions in the T4037, Capital Gains 2016 guide, on how to report the sale of your principal residence in this situation.

    For more information, refer to the Income Tax Folio S1-F3-C2, Principal Residence.

  11. Does the new rule apply for deemed dispositions of property?
  12. Yes, these new regulations apply for deemed dispositions. In a case scenario where you change your principal residence for another purpose, it is assumed that such property has been sold. This is to say that the new rule applies once there is the change in use of a property.

    You change all or part of your principal residence to a rental or business operation.

    You change your rental or business operation to a principal residence.

    Either way, which the change of use occurred, you have to report the year the change occurred and the resulting gain or loss from the change of use of that property.

    Refer to the T4037, Capital Gains 2016, once available, for more information.

  13. What does a legal representative do when an individual homeowner dies?
  14. When the owner of the property dies, automatically there is the need for the change of ownership. In such case, the legal representative of the deceased is to report the disposition on Schedule 3 of the final return of the deceased and also on a T1255 form if applicable. AS indicated in questions above.

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