Reporting Your Principal Residence Sale to Canada Revenue Agency

Couple Reporting Principal Residence Sales CRA | One80Law Group

If you are selling your home, you need to know about the Principal Residence Exemption and how it will affect your tax filing. Failure to do so could result in a costly tax payment adjustment if you get audited by the Canada Revenue Agency (CRA).

The Principal Residence Exemption

The Principal Residence Exemption is an income tax benefit that you want to claim. It provides you an exemption from tax on the capital gains realized when you sell the property you have declared as your primary residence. Prior to 2017, it was not required by the CRA to report any profits from the sale of your home. 

On October 3, 2016, the CRA implemented income tax amendments, which made reporting principal residence sales mandatory in Canada in order to claim a Principal Residence Exemption. This change was made in order to improve the compliance and administration of the tax system within Canada. 

The Principal Residence Exemption allows a Canadian homeowner the ability to avoid paying income tax on capital gains they receive from the sale of their primary residence, but this exemption only applies to your primary residence. If it is a secondary place of residence or a rental property, then you will not be eligible. If you rented out all or part of your property, conditions apply and you are required to pay taxes on the net proceeds.

The Impact of Principal Residence Exemption

According to the changes made, homeowners in Canada must now report every property that they sell on their tax return. While Canadians may access the exemption as before, the reporting requirements have changed. These changes allow the Government to track how many sales any one individual is making, and improve compliance with the tax system. 

How to Report your Home Sale

If the property you are selling was your principal residence for every year you have owned it, the Principal Residence Exemption will apply in Schedule 3 of your income tax return. If at any point during ownership the property was not your principal residence, or you were no longer a resident of Canada, exceptions will apply.  These exceptions will need to be navigated, especially by individuals looking to flip a house as a business. 

With these new reporting changes, it has become more important than ever to work with an experienced real estate lawyer. Keep your accountant updated so they can assist you with the process of submitting the necessary information. 

What If You Don’t Report Your Sale?

If you fail to report the sale of your property, including any taxable gains made from that sale, you may be subject to tax penalties. While the CRA does accept late designations, you may be fined for every month from the original date that your taxes were due. This may be especially burdensome if you are not covered under the Principal Residence Exemption benefit.  

Are you unclear on whether you might be at risk of tax penalties? Here are two types of individuals that are commonly at risk of violating income tax laws:

  • Property Flippers: Individuals who purchase a property with the intention to flip, and live it in as their primary residence while renovating, may be eligible for the principal Residence Tax Exemption. While each situation will differ on a case-by-case basis, these individuals will need to report the sale in order to not violate any income tax laws. 
  • Property Builders: If you’re building a new development or making significant renovations to a home, you will be required to report the circumstances of your sales. In the case of a deemed disposition, where you have changed the use of the property, the CRA may consider the property generally sold and your principal residence gain or loss will have to be reported. 

Need Help From An Expert Team?

If you need guidance with the process of selling your principal residence, our team has got you covered! Take proactive steps so that you can properly report the sale of your home. Book a free consultation today with the One80 Law Group to discuss how we can help!