Warming Up to the New Principal Residence Requirements
Written by: Francesca Iasparro, CPA, CA Partner at Sone Rovet Chasson LLP
February 7, 2017
This cold winter weather has me day-dreaming of warm summer days. Packing up the family car and heading to the cottage, enjoying our home away from home. Of course, thinking about my second home reminds me that the principal residence rules changed this past year.
The principal residence exemption (“PRE”) essentially allows each family unit to be exempt from paying income taxes on the capital gains arising from the sale of your principal residence. A family unit consists of you, your spouse or common-law partner and unmarried minor children. Those with only one principal residence will be able to take advantage of the full PRE. Those with more than one home can choose which residence to claim. However, the rules and reporting requirements regarding the PRE have changed.
In order to qualify as a principal residence, the taxpayer must:
- own the property (solely or jointly);
- “ordinarily inhabit” the home (living in it even for a short period will qualify it for the PRE; and
- designate the unit as a principal residence in the year of disposition.
Previously, Canada Revenue Agency (“CRA”) administratively didn’t require the reporting of the sale where the full gain was exempt from tax. Starting with the 2016 tax year, you will be required to report these dispositions on your personal income tax return and include information such as the acquisition date, date of sale, proceeds of disposition and description of the property to ensure that you qualify for the PRE. CRA may accept late filed designations; however, it may come with a price tag.
The one plus rule has allowed taxpayers to get the full exemption on two properties in a year when a taxpayer moves between properties. However, for sales after October 2, 2016, the one plus rule will no longer be available for individuals who were not a resident of Canada in the year the property was acquired.
Are you planning on purchasing another home? How will you decide which property to designate as your principal residence? Did you sell a personal use property in 2016? If this is you, contact us for a more in-depth discussion of how these rules may impact you. Sone Rovet Chasson LLP is here to help you sort through these rules.