Beginning this tax-filing season, any home sale that took place on or after January 1, 2016 needs to appear on the seller’s income tax return.
Sending your client a gentle reminder about this new change isn’t a bad idea.
Here’s what you need to know:
What is the principal residence exemption?
Due to the principal residence exemption in Canada, when we sell our homes, any increased value or “capital gains” are not taxed. Generally, the exemption applies for each year the property is designated as your principal residence.
This tax break matters to Canadian homeowners. Collectively, we have about $3 trillion in home equity and our homes are often our largest financial asset.
What are the changes on the reporting of the sale of a principal residence?
Starting with the 2016 tax year, individuals who sell their principal residence will have to report the sale on Schedule 3, Capital Gains of the T1 Income Tax and Benefit Return. You’ll have to indicate when you bought the house, and how much you sold it for. You’ll also have to provide the address of the property.
Is the same tax benefit still available?
Yes – the good news is that, in terms of taxes, nothing has changed. The same tax benefit is available to anyone who sells their home, provided the property was the principal residence for every year they owned it – even if part of the home was used for business purposes. There is no “new tax” involved, only a requirement that the sale details be reported on their tax returns.
So, if your client sold their home in 2016, remind them it’s important to report it on their 2016 tax return. They will still get the same tax break and you will help prevent the misuse of this important homeowner tax benefit.
For more information, you can refer to the Canada Revenue Agency’s Frequently Asked Questions (FAQs) page.
