In a piece for HuffPost Business Canada
, contributor Caroline Battista noted that the new rules might impact Canadians who have unknowingly skipped on paying their principal residence taxes in the past, even though the changes primarily deal with non-resident investors.
“If you sold your principal residence in 2016, you now need to report this on the Schedule 3, Capital gains of the T1 Income tax and benefit return,” Battista wrote.
“The new rules require you to report the sale of a property you are designating as a principal residence on your tax return. This includes any sales as of January, 2016. So, if you sold a home earlier this year, you'll have to provide basic information including the year you bought the house, how much you sold it for and the house address information.”
Doing so has a significant effect on one’s taxes, Battista said.
“As long as you are designating your home as your principal residence for all the years you owned it, you don't have to pay tax on the profit of the sale, thanks to the principal residence exemption (PRE).”
“Just remember that you can only designate one property as your principal residence for a particular year. So if you own a home in the city and a cottage up north, only one of these can be considered your principal residence.”
And what about residents who are not able to fulfill these stipulations for one reason or another?
“If you can't designate the property as your principal residence for all the years you owned it, then you may need to pay tax on a portion of the sale. You will need to use form T2091 (IND), Designation of a property as a principal residence by an individual (other than personal trust) to determine how much tax you will have to pay.”
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For Canadians who are planning to release their homes to the highly competitive real estate market, they need to be aware of the tax implications of the recent regulatory changes implemented by the federal government.