If you recently sold a principal residence, you have to report the sale on your income tax and benefit return. This requirement ensures that only those entitled to the principal residence exemption can claim it. This is part of the Canada Revenue Agency's (CRA) effort to maintain the fairness and integrity of the Canadian tax system.
What is a principal residence?
A principal residence can be any of these types of housing units:
- apartment in an apartment building
- apartment in a duplex
- trailer, mobile home, or houseboat
Generally, a housing unit will qualify as a principal residence if (1) you own the property alone or jointly with another person, (2) you, your spouse, your common-law partner, or any of your children lived in it at some point during the year, and (3) you designated the property as your principal residence.
You can have only one principal residence at a time. However, when you sell a principal residence and buy another (or move to another property that you own) in the same year, you can use the "plus one" rule when calculating the principal residence exemption amount. This rule allows you to claim the principal residence exemption for both properties for that year even though you can only designate one property as your principal residence.
If you were not a resident of Canada throughout any tax year during which you owned the designated property, contact the CRA. Your principal residence exemption may be reduced or eliminated based on how long you were not a resident.
What is the principal residence exemption?
When you sell a housing unit, you may realize a capital gain. However, special rules, referred to as the “principal residence exemption,” may reduce or eliminate your capital gain. If the property was solely your principal residence for every year you owned it, you may not have to pay tax on the capital gain. If the property was not your principal residence at any time when you owned it, you may have to report all or part of the capital gain.
What do you need to do to get the principal residence exemption?
You will need to report the sale of your principal residence and make the designation. You can do this by filling out the relevant sections on Schedule 3, Capital Gains (or Losses), when you file your income tax and benefit return. To claim the principal residence exemption for sales in 2017, you also have to file Form T2091(IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust), which includes certain information such as: the address of the property you sold, the date it was purchased, and the amount you sold it for. You can submit the Form T2091 electronically using EFILE and NETFILE software.
What happens if you don't report the sale?
If you forget to report the sale of your principal residence or don't make the designation, you will need to ask the CRA to amend your income tax and benefit return for the related tax year as soon as possible. The CRA may be able to accept a late designation in certain circumstances, but you may have to pay a penalty.
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