Unpacked: Principle residences

Did you know that principal residence sales and any resulting capital gains are tax exempt in Canada? Find out more on how to get your tax exemption below.

The sale of a principal residence (PR)—i.e., the property where you live—is one of the few assets that do not get taxed. A family can designate only one property as their principal residence. When you sell your principal residence, any gain (the difference between what you bought it for and what you sold it for), has no tax consequence. This is called the Principal Residence Exemption (PRE).

For example, if you bought your house or apartment in 2010 for $100,000 and sold it in 2015 for $500,000, the $400,000 gain on the property could qualify for the PRE and be exempt from tax. Given the rise in Canadian real estate prices over the years, PRE can help you save a lot, making it easier for Canadians get on the property ladder.

Until 2016, if you sold your PR, no disclosure was necessary in your annual personal tax returns and you would automatically qualify for the Principal Residence Exemption (PRE).  As of 2016, to qualify for PRE, Canadian taxpayers are required to disclose basic information regarding their PR when filing personal tax returns. To qualify for the PRE, in the year you sold your PR, you must state how much your PR sold for, and when you bought/acquired it.

If, for some reason, you forget to mention the sale of your PR, you can make a “late amendment” to your tax return, although a penalty of up to $8,000 may apply. The CRA has indicated that they will only administer late penalties in excessive circumstances for PR sales in the 2016/2017 tax years. If you have sold your PR since 2016 or are considering selling, look into getting some guidance from a financial advisor.

KEEP THE CONVERSATION GOING

Do you know how reporting changes affect mixed use of your PR and claiming the PRE? Post a comment below.

Disclaimer

The views and opinions expressed in this article are those of the author and do not necessarily reflect that of CPA Canada.

 

About the Author

Zara Kanji, CPA, CGA

Founder of Zara Kanji & Associates, a CPA firm in Vancouver, BC.
Zara is a founder of Zara Kanji & Associates, a CPA firm in Vancouver, BC. Zara is passionate about financial literacy and regularly provides presentations for entrepreneurs, start-ups, women’s groups and new Canadians.