August 24, 2019

Tax affects homeowners

April Dunn

Along with the new mortgage rule changes for qualifying that were introduced in early October, the minister of finance also announced tax changes that will affect every homeowner in Canada.

There will now be requirements to claim the capital gains exemption on the sale of a principal residence.

The intention is to close current tax loopholes used by foreign real estate investors, but the changes are affecting all Canadian homeowners if only by the fact that you will now be required to report the information on your tax return.

All property is subject to a capital gains tax. So if there is any increase in the value of any property such as a home, rental property, family cottage or even a stock portfolio, you may be required to pay a capital gains tax.

Your principal residence is exempt from this tax so that allows you to shelter any profits you might make from the sale of your primary residence.

A principal residence is any property that has been occupied during the year by you or a family member, but that can only be one property.

Here are a few requirements for a property to be designated as a principal residence:

Only one home per family is allowed.

There is no minimum length of time that you must occupy the home.

The CRA will, however, be checking on your buying and selling patterns, how much time you spent in the home, etc. to ensure the property is really your primary residence and not part of a business of buying and selling properties

The property you designate as your primary residence cannot sit on land greater than 1.2 acres, so you would have to pay capital gains tax on the value of the land greater than the 1.2 acres although you may be able to get an exemption

Starting with the 2016 tax year, you will now be required to report the sale of your principal residence, which wasn’t required in the past.

It will get complicated if you only use part of your home as your principal residence and are using another part as a rental suite or a home based business as capital gains may be due on that portion of the sale.

The rules are quite complex and you must report the sale of a principal residence or a deemed sale.

A deemed sale occurs if there is a change in the use of the property such as changing the use of your current principal residence to a rental property or a business and vice versa.

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.

 

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