TELL YOUR ACCOUNTANT
DID YOU SELL YOUR HOME?
DON’T FORGET TO TELL YOUR ACCOUNTANT
BY: HOLLY S. WILSON, BBA, CPA, CGA, DAYE KELLY & ASSOCIATES
D
id you know that the Canada
Revenue Agency (CRA) requires
individuals to report the sale of
their principal residence
on their tax return?
There is a principal residence exemption
(PRE) stating that a family unit is exempt
from capital gains tax if selling a home.
Before the tax year 2016, when a person or
family sold their home, the gain or loss on
the sale did not have to be reported on their
tax return.
The federal government made
administrative changes for the reporting
requirements on the sale of a principal
residence. Beginning in the tax year 2016,
to claim the PRE, CRA requires that you
provide the basic details of the sale on your
tax return (date of acquisition, the address,
the selling price).
For tax years 2016 and onward, CRA will
only allow the PRE if you report both the
designation of a principal residence and the
disposal on your tax return. If you do not,
CRA may charge penalties.
doesn’t have a principal residence, the
beneficiary can claim the home as their
principal residence from the date of death
onward until they dispose of it. If the estate
of the taxpayer is entitled to the property, it
acquires the property on the date of death
for the fair market value and is taxed on the
capital gains when sold. (This gain would be
the increase in fair value while held by the
estate).
There are other complex situations not
included in the above—such as PREs
relating to trusts, farming properties,
etc.—which should be discussed with an
accountant.
Remember, if you’ve sold your house,
deemed to have disposed of it, or had a
change in its use, you must report it on the
appropriate forms on your personal tax
return .
If a couple divorces or separates, each spouse
is required to report a disposition of one
half of the property at the time of separation.
If one of the spouses keeps the home, that
spouse can continue to elect it as their
principal residence.
If your family owns more than one property
(a home and a cottage, for example), you
must elect which property is to be the
principal residence for each year owned.
You can elect to claim your cottage as your
principal residence for the years you owned
it, however, that means you may have to pay
capital gains tax on your home when you sell
it using the PRE calculation.
If your home is situated on land in excess
of one-half hectare (approx. 1.2 acres), the
excess land is generally deemed not to
qualify as part of the PRE unless you can
argue that it is necessary for use of the
property. There are considerations for
residences that contain a rental space,
such as a home with a basement
apartment. Generally, if the property
meets the following conditions, CRA
will still allow the exemption: the
rental unit must be secondary to the
main use of the property, there have
been no structural changes to the
property, and a capital cost allowance
has not been claimed. If the property
doesn’t meet these conditions, there
is a calculation required to allocate
some of the gain to the rental space
portion of the home and it may be
subject to tax.
When an individual dies, the principal
residence is deemed to have been disposed
of immediately before the time of death. If
the taxpayer has a surviving spouse, he/
she can continue to elect the home as the
principal residence. If the Will leaves the
property to a child or family member who There are situations where you are
considered to have disposed of your
property even if you didn’t sell it.
For example, when there has been a
change in use such as converting all or
part of your home into a rental space
or business operation (like a home day
THE FOLLOWING ARE SOME COMMON
SITUATIONS CANADIAN RESIDENTS
MIGHT ENCOUNTER WITH RESPECT TO
THE PRE:
If you sold and bought a home in the same
year, the rules recognize that a taxpayer can
have two residences in the same year when
one is sold and another one is purchased.
care). You would report the disposal and cost
for the same fair market value. Each change
of use should be reported.
HOLLY WILSON
Holly Wilson is an accountant with Daye Kelly &
Associates. She has been with the firm since 2009.
She has experience with accounting and audit
services as well as personal and corporate tax.
Holly is currently a volunteer bookkeeper with a
local nonprofit and continues to enjoy finding
ways to serve her community when she can.
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