Sell your home? Better tell the tax man
New reporting requirements have recently come into effect that requires all Canadians to report the sale of their home on their tax return.
Even though there will generally not be any taxes owing on the sale (see below), if you fail to report the sale by the filing deadline for your tax return (typically April 30 th ), late filing penalties of $100 per month will apply up to a maximum of $8,000.
Given the severity of the penalties the Canada Revenue Agency (CRA) can impose, it is extremely important that taxpayers are aware of this new requirement.
Who Does This New Rule Apply To?
The new rule applies to all taxpayers who sell their principal residence in any year, starting in 2016.
What is a Principal Residence?
To qualify as your principal residence you must own the property and it must be where you ordinarily live . The sale of a principal residence was not required to be reported to the CRA prior to 2016.
Do I Have to Pay Tax if I Sell My Principal Residence?
If you designate the property as your principal residence for every year you owned it, you will not pay tax on the sale, even if you sell it for more than you paid for it. Exception: if you operated a home-based business or rented out a portion of your home, you might have to pay capital gains tax on that portion of the home.
How Do I Report the Sale of My Principal Residence?
The sale will be reported on Schedule 3 of your income tax return, and the required information is:
- Address of the property
- The year it was acquired, and
- The sale price
This information must be reported on your tax return relating to the year of sale (i.e., if you sell your house in 2017 you must report the sale on your 2017 income tax return, which will generally be due by April 30th , 2018).
On a Related Note – First Time Home Buyer Tax Credit
If you became a first-time homeowner in the year, congratulations! There is a $5,000 federal tax credit available to you if you purchased a home during the year and you have not owned a home in any of the four prior years. The credit equates to a tax savings of $750, and can be claimed on Schedule 1 of your income tax return.
If you have any questions or need any assistance whatsoever in fulfilling this new requirement, the team at Cloutier Matthews is here to help. Contact us today for a free initial consultation.