Fortunately, Canadians don’t have to pay capital gains tax on the sale of their primary residence. Until recently, you didn’t even have to mention a sale on your tax return either, but while the capitals gains on your home can still be exempted from tax, there are important new reporting requirements.
Last October, the Canadian government announced new measures requiring everyone to report the sale of their home on their tax return. If the sale is not reported, you could be re-assessed. You may even be subject to a penalty in the future. CRA has stated that it is unlikely a penalty will be issued when the sale occurred in 2016, given that the reporting requirement is brand new, but it may not be so lenient going forward.
The new rule is part of the government’s attempt to rein in potential abuses of the principal residence exemption (PRE), such as non-Canadian residents claiming the exemption and others claiming it on a second property in the same year. Usually, 50% of a capital gain on an asset must be reported as taxable income. But the PRE allows Canadian residents to be exempt from paying tax on capital gains on their principal residence. Only one property can be designated per year as a principal residence, therefore gains may be taxable on the sale of a second property, like a vacation home.
The bottom line is this: if you sell your home, complete Schedule 3 at tax time to claim the PRE and to avoid any potential penalties for late filing. Most individuals previously eligible to claim the PRE will continue to remain eligible.