Did you sell your home in 2016? You will need to report that information on your tax return. Seem like brand new information? It is. In October 2016, the Finance Minister announced changes to the tax reporting requirements for capital gains earned from the sale of your principle residence. Here is what you need to know.
What is a principle residence?
A principle residence is a residential property that you owned and occupied at any point during the year. This can be your main residence, a cottage, or a mobile home.
What are capital gains?
Capital gains are the profits you received when you sold your home. This money is subject to capital gains tax.
What is the capital gains tax exemption?
When you sell your principle residence, the Canada Revenue Agency exempts you from paying capital gains tax on the profits that you earned.
What has changed?
The good news is that the capital gains tax exemption remains in place for anyone selling their principle residence. But, now homeowners are required to report this income when filing their tax return.
What needs to be reported?
When you prepare your 2016 tax return, you will need to report details of your home sale including a brief description of the property, the date you first bought the home, the date you sold the home, and proceeds of disposition. This information needs to be reported even if you are fully exempted from the capital gains tax.
How is the sale reported?
When preparing your tax return, you will need to complete a Schedule 3. If at any time you used the property to earn income, even if it was your principle residence at the time you sold it, you will be required to complete additional forms (Form T2091 or FormT1255) to provide more details.
While it might seem like extra work for something that remains completely tax exempt, it is important to report the information correctly. Failure to report this information may put you at risk for a financial penalty from the Canada Revenue Agency.
This information is a general guideline intended to remind you to include details of your home sale when preparing your tax return. You should always consult directly with the Canada Revenue Agency or a qualified accountant for more information and advice specific to your situation.