Tax Reporting Change of Principal Residence Disposals
On October 3, 2016, the Canadian Government announced a new important, administrative change regarding the sale of your principal residence. Currently, Canadian tax payers are eligible for a principal residence exception if their home is their principal residence for every year they have owned it. Until late 2016, most Canadians did not have to report the sale of their principal residence on their income taxes nor were they required to report the gains on the sale.
Changes for the 2016 Tax Year
As Canadians prepare for tax season this year, they should be aware of the changes to this policy. If you sold your principal residence in 2016, you will now be required to report “basic information (date of acquisition, proceeds of disposition and description of the property) on your income tax and benefit return when you sell your principal residence to claim the full principal residence exemption”.
This change is intended to improve the compliance and administration of tax reporting in Canada.
This new change also applies to deemed dispositions of property. According to the CRA, “a deemed disposition occurs when you are considered to have disposed of property, even though you did not actually sell it. For example, a deemed disposition will occur if there is a change in use of the 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.
When you change the use of a property, you are generally considered to have sold the property at its fair market value and to have immediately reacquired the property for the same amount. You have to report the disposition (and designation) of your principal residence and/or the resulting capital gain or loss (in certain situations) in the year the change of use occurs.”
Who is Affected?
Any Canadian taxpayer who sold their principal residence in the 2016 tax year will be affected. They will be required to comply with the new reporting regulations and provide details of the residence and it’s sale to remain eligible for the principal residence exemption.
These changes can be confusing and you may not be exactly sure how they might affect your situation.
To learn more or ask questions about the principal residence exemption or any other tax matter, reach out to the experts at www.jmjaccounting-tax.ca. The consulting team at J.M.J. Accounting & Tax Services Inc. offers a lifetime of experience serving the accounting & tax needs of small & medium size business in S.W. Ontario.