Written by: Gwyneth James MBA CPA, CGA Senior Partner
Starting with the personal tax returns filed for 2016, individuals who sold their principal residence had to report that sale on their tax return on Schedule 3 – Capital Gains (or Losses) for the Year. The principal residence exception eliminates any capital gains from the sale providing that the home was your principal residence during the entire period that you owned it; this schedule was for reporting purposes only.
New for your 2017 tax returns, another form must be completed for all principal residence sales. In addition to the Schedule 3, Form T2091(IND) Designation of a property as a Principal Residence by an Individual (Other Than a Personal Trust) must be signed by the taxpayer and filed with the personal tax return.
If the home was your principal residence for the entire period you owned it, only page 1 of the form needs to be filled out. No cost of property is required for these individuals.
Deemed dispositions need to be reported here as well. A deemed disposition may happen as a result of a change in the use of property, the death of a taxpayer, or becoming non-resident.
Failure to report the sale of a principal residence in the year it is sold will result in late-filing penalties and could result in the taxpayer being taxed on the entire capital gain.
A property can qualify as a principal residence as long as the taxpayer, their spouse or common-law partner, or any of the taxpayer’s children resided there at some point during the year. There may be exceptions if the property is rented out.
Canada Revenue Agency considers the first 1.25 acres of a property as part of the principle residence. There will be a capital gain on the excess property when the principle residence is sold. However, properties larger than 1.25 acres that are not subdividable are an exception.
Make sure you don’t miss this important change to your tax return!