# New CRA rules on reporting sale of principal residence takes effect



## carverman (Nov 8, 2010)

As of 2016 tax year, the new CRA rules (announced Oct 3, 2016),take effect on the sale of your principal residence.
You now have to report sales of your principal residence in the same year that your report your income tax.
More complexity in a tax system that is already complex. 

The "honeymoon" with CRA on principal residences can be considered "over"
What's the next step...some kind of minimum CRA tax on sale of principal residences in the future?
Now you will be FORCED to COMPLY or face some kind of penalties if you FORGET or decide not to.

From the CRA website below:


> Starting with the 2016 tax year, generally due by late April 2017, you will be required to report basic information (date of acquisition, proceeds of disposition and description of the property) on your income tax and benefit return when you sell your principal residence to claim the full principal residence exemption.
> 
> This change will improve compliance and administration of the tax system
> 
> ...


READ and be warned folks! *Here are THE PENALTIES if you don't report the sale*



> For the sale of a principal residence in 2016 or later tax years, CRA will only allow the principal residence exemption if you report the sale and designation of principal residence in your income tax return.
> 
> If you forget to make a designation of principal residence in the year of the sale, i*t is very important to ask the CRA to amend your income tax and benefit return for that year. Under proposed changes, the CRA will be able to accept a late designation in certain circumstances, but a penalty may apply.*
> 
> ...


read more:
http://www.cra-arc.gc.ca/gncy/bdgt/2016/qa11-eng.html


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## My Own Advisor (Sep 24, 2012)

What's the next step...some kind of minimum CRA tax on sale of principal residences in the future?

Yes. Otherwise, why bother?

It seems things are trending in that direction...!


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## Beaver101 (Nov 14, 2011)

^ Guess there were too much principal residence flipping abuse going on and now this might work in favour of real first time "home" buyers. Or just watch the housing market crash ...


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## dotnet_nerd (Jul 1, 2009)

It's about time. I think this is a good rule.

Too many are making a business out of renovating houses, or building new. They move in for a short time then flip.

They're not contributing anything to the tax system and abusing the principal residence loophole.


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## carverman (Nov 8, 2010)

dotnet_nerd said:


> It's about time. I think this is a good rule.
> 
> Too many are making a business out of renovating houses, or building new. T*hey move in for a short time then flip.*
> 
> They're not contributing anything to the tax system and abusing the principal residence loophole.


I was thinking the same thing. In the additional text of the above CRA website, the reporting may be to flag that the house that was deemed to be a principal residence of the taxpayer is sold. 



> Earlier this month Finance Minister Bill Morneau introduced tax changes that will impact every homeowner and taxpayer in Canada. Instead of focusing their efforts on specific buyers, the feds chose to close current tax loopholes that directly apply to real estate earnings. In particular, the newly announced rules will tighten and enforce the requirements necessary for claiming the capital gains tax exemption on a principal residence. To help you understand how this impacts you, we’ve answered eight questions about the principal residence exemption and the new rules.





> However, starting with the 2016 tax year you will be required to report basic information such as *date of acquisition, date of sale, proceeds of disposition and a description of the property on your income tax and benefit return*—generally, this return is due by late April 2017—in order to qualify for the principal residence exemption.
> 
> This reporting requirement will now apply to every property sold in Canada, even if the entire gain is fully protected by the principal residence exemption.


Criteria CRA uses that the home sold is a principal residence. 


> No. 1: One per family
> 
> A family unit *can only designate one property per year as a principal residence*. A family unit is you, your spouse (or common-law partner) and any children under the age of 18.
> 
> ...



http://www.moneysense.ca/spend/real-estate/8-questions-about-the-principal-residence-tax-rules/

In Toronto and other cities, where there is a housing bubble, and properties can change hands within a year or even less, there wasn't any way for CRA to establish criteria whether it was indeed a principal residence or just some property bought, renovated with the owner living in it for a short time to fix it up, and flip it or a legit principal residence of several years.

House flipping is subject to capital gains taxes..where principal residences at least so far, are not. 

This may also help to cool the housing bubble and property value increases in places such as Toronto.
However if the current criteria states that a family has to live in their principal residence for a year, fix it
up, sell it for a profit and then buy another more expensive home from the proceeds of sale and profit,
(There may be some adjustment to that in the future as well).

iE: One could buy in a specific year, declare it on their taxes for that year, fix it up in the next year and sell it the
year after. Nothing stopping people from doing that right now.


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## sags (May 15, 2010)

The information will also be handy for the Provinces.

Ontario has been cracking down on contractors operating without WSIB certificates.

People purchasing homes to flip or rent are required to ensure anyone working to renovate the dwelling have a certificate.


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## Eclectic12 (Oct 20, 2010)

My Own Advisor said:


> carverman said:
> 
> 
> > ... The "honeymoon" with CRA on principal residences can be considered "over"
> ...


You guy don't see it as a benefit at minimal cost for the gov't to have a better handle on legit PRE sales versus having to pay to investigate potential abuses/missed reporting?


While adding tax is a possibility - I can see other reasons to go this route.


Cheers


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## carverman (Nov 8, 2010)

Eclectic12 said:


> You guy don't see it as a benefit at minimal cost for the gov't to have a better handle on legit PRE sales versus having to pay to investigate potential abuses/missed reporting?
> 
> 
> While adding tax is a possibility - I can see other reasons to go this route.


I can see the advantage for CRA, not having to chase down abusers not paying their fair share of tax on flipping homes that were not meant to be principal homes in the first place, but just taking advantage of a money making scheme of the hot markets in some areas.

I had a look at the 2016 sched 3 form (Capital gains/losses). 
On the back of the principal residence declaration, CRA ask you to tiick off a box for the principal residence designation
1) address 2) Year of acquisition 3) Proceeds at disposition

Note; CRA are saying that if you rent out a portion of your principal residence (50%), while still living there, the principal residence exemption no longer applies as it is then considered income property.


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## kcowan (Jul 1, 2010)

I think they are just gathering data so that they might adjust something in the future. e.g. when a family buys a waterfront home in West Van for $12 million and sells it 2 years later for $18 million as their PR, I think the $50k/yr CRA analysts might propose something to stop the $6 million profit tax-free. Up until now they were oblivious to this.


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## carverman (Nov 8, 2010)

kcowan said:


> I think they are just gathering data so that they might adjust something in the future. e.g. when a family buys a waterfront home in West Van for $12 million and sells it 2 years later for $18 million as their PR, I think the $50k/yr CRA analysts might propose something to stop the $6 million profit tax-free. Up until now they were oblivious to this.


This is what I think they are getting ready for. I noticed that they did not ask for FMV or price paid for the year of acquisition YET,
but this may come out on future sched 3 tax forms. 

You are right that they will be expecting something from the escalation of real estate prices on Principal residence sales in future years.

While the current tax free scheme for lottery winnings and principal homes still applies at least for now, it won't be long before we go the same way as the US tax system where you can deduct a portion of the mortgage payment\,but then pay capital gains on the sale of your home, and lottery winnings will be taxed.

The gov't has to work out the details slowly over a few years.
After all, with some lottery winnings in the 22 million range, CRA is missing out on their windfall.


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## dotnet_nerd (Jul 1, 2009)

sags said:


> The information will also be handy for the Provinces.
> 
> Ontario has been cracking down on contractors operating without WSIB certificates.
> 
> People purchasing homes to flip or rent are required to ensure anyone working to renovate the dwelling have a certificate.


I believe contractors working on _residential_ construction are WSIB exempt.


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## carverman (Nov 8, 2010)

dotnet_nerd said:


> I believe contractors working on _residential_ construction are WSIB exempt.


Depends on the contractor. If they are small (home handyman type and maybe a helper) they probably are WSIB exempt,
I had a professional roofing company do my roof/re-insulate about 3 years ago. I asked them if they had WSIB insurance and the owner told me they have it (3-4 employees) and since they are doing roofs on ladders and scaffolding, they had to have it. He showed me his WSIB registration. 



> Please note: This exemption applies to independent operators, sole proprietors, partners in a partnership or executive officers in a corporation. *However, if your business employs workers, you must register with the WSIB and have coverage for your worker*


http://needwsibcoverage.ca/who-needs-coverage/home-renovators


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## sags (May 15, 2010)

Home Renovation Work Exemption

If you do renovation work on private residences or private cottages, you do not need to get a clearance number if you are hired and paid by the occupant or a member of their family.

If you are hired and paid by the occupant or a member of their family to do work on a private residence, then the work is considered exempt from Mandatory Coverage.

*However, the exemption does not apply if you are hired to do renovation work on*:

Income property.

Structures situated at the location of a private residence where the structures are used for commercial purposes, e.g.: a garage that is used to operate a motor vehicle repair business.

A home that the owner does not live in, but that is being fixed up to sell.

Building a new home.

If you are doing any of the work listed above you will need to make sure a valid clearance number is in place before any construction work can begin. All construction businesses/contractors doing this work must be registered with the WSIB and are required to provide clearance number certificates.


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## kcowan (Jul 1, 2010)

carverman said:


> ...the US tax system where you can deduct a portion of the mortgage payment\,but then pay capital gains on the sale of your home, and lottery winnings will be taxed.
> 
> The gov't has to work out the details slowly over a few years.
> After all, with some lottery winnings in the 22 million range, CRA is missing out on their windfall.


In the US you have 18 months to roll over the gains into another PR without tax but that does not apply when people downsize or liquidate.


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## My Own Advisor (Sep 24, 2012)

dotnet_nerd said:


> It's about time. I think this is a good rule.
> 
> Too many are making a business out of renovating houses, or building new. They move in for a short time then flip.
> 
> They're not contributing anything to the tax system and abusing the principal residence loophole.


+1 Totally agree. The key for me will be compliance, as in, how are they going to chase flippers now? I suspect most Canadians flipping houses in Toronto and Vancouver have no idea this rule exists. Hopefully it becomes a cash flow for CRA and we can limit the bureaucracy elsewhere.


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## bgc_fan (Apr 5, 2009)

Just for info. One reports it, but it is really just for reference as it doesn't affect the tax payable IF it is your principal residence.


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## gibor365 (Apr 1, 2011)

imho, i think it would be good that you shouldn't pay tax on selling of you principal residence only if you lived there 5 (or so) years.


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## kcowan (Jul 1, 2010)

Capital Gains PR Exemption after years of ownership:
Years Amount
1 0
2 20
3 40
4 60
5 80
6 100
If you want your full exemption, stop moving so often.


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## gibor365 (Apr 1, 2011)

> If you want your full exemption, stop moving so often.


 Or give a ful exemption (es per current rules), but only for families who move let's say 100 km from current residence (in order not to hit with taxes families that move for job/study reasons)....
I know people who constantly buys and sells new houses in Thornhill earning huge $$$ and not paying taxes on capital gains ... on the other hand some poor senior has to pay taxes on ridiculous 1-2% HISA


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## bgc_fan (Apr 5, 2009)

kcowan said:


> Capital Gains PR Exemption after years of ownership:
> Years Amount
> 1 0
> 2 20
> ...


Just a point, some military members have a habit of being moved around every 2-3 years. Unless you feel that they should be penalized for wanting to own a home, then feel free to push to implement this type of fairness.


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## kcowan (Jul 1, 2010)

bgc_fan said:


> Just a point, some military members have a habit of being moved around every 2-3 years. Unless you feel that they should be penalized for wanting to own a home, then feel free to push to implement this type of fairness.


I got moved around a lot by a company and they had a liberal moving plan to compensate for costs incurred. Anything can work if the government has the guts to make it work. The company usually covers the moving company, hotels and travel as well as selling fees. They are substantial.

CRA could also make an exception for company-initiated PR sales. My shortest stay was 2.5 years.


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## bgc_fan (Apr 5, 2009)

kcowan said:


> I got moved around a lot by a company and they had a liberal moving plan to compensate for costs incurred. Anything can work if the government has the guts to make it work. The company usually covers the moving company, hotels and travel as well as selling fees. They are substantial.
> 
> CRA could also make an exception for company-initiated PR sales. My shortest stay was 2.5 years.


Problem with putting exceptions is that you start putting in loopholes. For example, in this case, couldn't someone set up a company that employs him as a professional blogger, but is really just flipping houses? Every few years, he makes a justification that part of work is to live in different areas of the town or different cities as research for his blog?


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## dotnet_nerd (Jul 1, 2009)

carverman said:


> After all, with some lottery winnings in the 22 million range, CRA is missing out on their windfall.


It's off topic but lottery winnings should be tax free. The US system is a ripoff (not that I care, I don't gamble)

Lottery tickets are paid for with after-tax dollars. You can't writeoff the cost of your tickets, so why should the IRS be entitled to part of your winnings? Ripoff.


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## redsgomarching (Mar 6, 2016)

bgc_fan said:


> Just a point, some military members have a habit of being moved around every 2-3 years. Unless you feel that they should be penalized for wanting to own a home, then feel free to push to implement this type of fairness.


there are provisions for this


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