Under new rules (effective as of October 2016), Canadians are actually required to report the sale of a principal residence. For some, this new rule is nothing more than a compliance exercise, albeit, one shadowed by the threat of unrestricted audits and sizable penalties. To greatly help maximize the administrative centre gains tax strategies under this new rule MoneySense has given us a summary of tips to bear in mind.
The new rules, announced in early October 2016, will require one to report each and every property sale on your tax return. That means in your 2016 tax return (due sometime in April 2017) you will need to record the sale of property, even if you don’t finish up owing tax on the sale.
Fail to survey the sale-whether intentionally or unintentionally-and you risk an audit, fines and interest charges and the ability to shelter future home sales through the principal residence exemption (PRE). Even if you haven’t actually put your home up for sale, the CRA shall deem it to be sold if you change the use of the property.
Take, for example, you choose to buy a fresh, larger home for your growing family but want to hold onto your current property and rent it out. The CRA considers this a “deemed disposition”-you haven’t actually moved the ownership to another person, nevertheless, you have changed the primary use of the property, from your family home to a rental property. Therefore, the CRA will consider the real home sold, for taxes purposes, at the existing fair market value. For a long time, many Canadians minimized the quantity of capital gains taxes owed by strategically designating when each property was their principal residence, for tax purposes.
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To make this strategy work, however, the properties can’t be income-producing during the years these are designated as a principal residence. “Canadian households with a home and a cottage owned will be impacted by these new rules personally, as they’ll need to survey the sale of every property,” explains John Sliskovic, private client services tax head at EY LLP.
200,000. For the next 14 years, until 2016, you and your spouse lived full-time in your city home and spent vacations and summers at the cottage. 725,000. You now want to stop working and part of that changeover is to simplify your life by selling both properties and downsizing. 18,750 in taxes. That’s not chump change. Speak to a taxes specialist and also you could fine-tune this strategy to save even more on your taxes further.