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Failure to tell CRA about sale of home may bring penalties

The Canada Revenue Agency (CRA) may be lenient with taxpayers when it comes to the new requirement to report the sale of their principal residence on a 2017 tax return — but expect no breaks for the 2018 tax year, Canadian tax lawyer David J. Rotfleisch tells

As long as a property was solely an individual’s principal residence for every year they owned it, says the CRA, the “principal residence exemption” means they will not have to pay tax on any gains from the sale. Prior to 2016, taxpayers did not have to report the sale to the CRA to claim the principal residence exemption. 

Although the principal residence exemption is still in place, the CRA has recently changed the rules. For the sale of a principal residence in 2016 and subsequent years, it will only allow the exemption if taxpayers report the disposition on their income tax return for that year.

For 2016, taxpayers had to report the sale and designate the property on Schedule 3, Capital Gains (or Losses). For 2017 and later years, in addition to reporting the sale and designating a principal residence on Schedule 3, taxpayers also have to complete Form t2091(IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust).

“It is a new requirement introduced due to concerns that people were improperly claiming principal residence exemptions to which they were not entitled. Because 2017 is the first year with the reporting requirement, it is still relatively unknown,” says Rotfleisch, founding tax lawyer with Rotfleisch & Samulovitch Professional Corporation.

Rotfleisch says there are penalties for failure to file the required form t2091

“While the CRA may be lenient in applying the penalties since this is the first year the form is required, they have the ability to charge full penalties out of the starting gate,” he adds.

As the Globe and Mail reports, fines for failing to report could be equal to the lesser of $8,000 or $100 for each complete month an individual is late in reporting.

Rotfleisch says taxpayers who have already filed their 2017 returns but neglected to report the sale of a principal residence still have the opportunity to rectify their situation with the CRA.

“An amended return with the missing form t2091 should be filed. In subsequent years, a voluntary disclosure may be needed in order to avoid the penalties,” he says.

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