The following changes may impact older adults who have perhaps inadvertently changed the nature of the ownership of their principal residence. This could be the result of transfers to family members, adding family members on title (joint ownership), etc. Some of these changes in the nature of ownership may result in liability for significant capital gains tax when you sell your home, or in other circumstances. If the following may apply to you, we recommend seeking professional advice from an accountant or tax lawyer.
The Department of Finance released a series of measures on October 3, 2016, aimed at “…protecting the financial security of Canadians, supporting the long-term stability of the housing market and improving the integrity and fairness of the tax system, including ensuring the principal residence exemption is available only in appropriate cases.” While the measure regarding the principal residence exemption is likely aimed at real estate agents and others who are ‘flipping’ properties and wrongly using the principal residence exemption to avoid paying capital gains tax, it will catch others as well. There could be significant tax consequences for many older adults who may have inadvertently triggered a capital gain, given the amount of equity (or capital gain) in many residences in the lower mainland.
Concurrent with the Department of Finance’s announcement, the Canada Revenue Agency (CRA) announced significant changes to its administrative position regarding the reporting of principal residence dispositions. Briefly, the CRA states the following:
Starting with the 2016 tax year, individuals who sell their principal residence will have to report the sale on Schedule 3, Capital Gains of the T1 Income Tax and Benefit Return. Reporting will be required for sales that occur on or after January 1, 2016.
You will complete Schedule 3 and file it with your T1 Income Tax and Benefit Return for the year you sell the property. If the property was your principal residence for every year that you owned it, you will make the principal residence designation in your Schedule 3. In this case, the year of acquisition, proceeds of disposition and the description of the property are the information that will have to be reported. Schedule 3 will be modified accordingly. Form T2091 (or Form T1255) will still be required for the designation in the case the property was not your principal residence for all of the years that you owned it.