With the new tax changes in place, there are a few things you should know about that impacts you as a homeowner and taxpayer. Here are seven answers to questions you may have about these changes and how it affects you.
What Makes a Principal Residence?
If your property is occupied and owned by you at any given time, it may qualify as a principal residence, according to the Canada Revenue Agency. This doesn’t just mean traditional homes either; a boat you live on, a mobile home, condo, or detached house counts towards being able to shelter the profits you earn with a sale of the residence.
What About Principal Residence Exemption and Capital Gains?
A capital gains tax is a tax levied on appreciation in the value of an asset. However, this is an excellent event for investors since the tax is only paid at your marginal tax rate and on half the profit earned. If you sell a rental property and the profit was $50K then you would have to pay capital gains tax but you’d only owe tax on $25K, based on your marginal tax rate.
What About Homeowners and the New Change?
There are not any changes to what is known as the principal residence exemption where you keep the profits you earn on the sale. The difference is that you do have to now report a few things about the sale on your taxes such as date of sale, date of acquisition, description of the property, and proceeds of disposition.
What About the CRA?
The CRA created a minor change that would help them with new audit leads. This is to make sure that those who try to qualify for the principal residence exemption are truly those who deserve it and aren’t just people who flip houses, serial builders, or those who actually
How is the Sale Reported?
According to MoneySense:
Anyone that sold a home in 2016 will have to complete a Schedule 3 and file it with your T1 Income Tax and Benefit Return. If the property was your principal residence for every year that you owned it, you will make the principal residence designation on the Schedule 3. In this case, the year of acquisition, proceeds of disposition and the description of the property are the only information that you will have to report.
What About the Rules?
There are just a few stipulations about the eligibility of a primary residence which include:
- You must live in the home
- Only one per family
- Cannot earn income
- Land size is restricted
Even with these stipulations you still have a few options such as being able to claim any property you own and designate it as your primary residence. This even includes seasonal residences.
How Do I Learn More?
To learn more about the changes that have recently taken place, check out the T4037 Guide: Capital Gains 2016 from the Government of Canada.
If you have questions about the Principal Residence Tax Rule or how a real estate lawyer can help, Oakville Real Estate Law is one of the top firms in Canada for real estate transactions. The firm’s team led by Robert Rose has worked on thousands of transactions the years and have the knowledge and experience you need. For more information on what you need to know about being able to afford a home, please contact usand we will be glad to help.