How big is the tax bill hiding under your roof?

Monday, November 20, 2017 Written by Emmanuelle in General

First a quick reminder of what is a “principal residence”: it is a “housing unit (single family, town house, condominium, cooperative unit or a leasehold interest) that is owned in the year by the taxpayer and:  

  1. Inhabited in the year by the taxpayer or certain related parties (spouse, common law partner, former spouse or partner or a child of the taxpayer)
  2. Is the only property designated by the taxpayer in the year as a principal residence
  3. Includes land as can be reasonably regarded as enhancing the residence up to ½ hectare.”

That means that a principal residence from a tax standpoint has to meet certain requirements in order for the taxpayer to benefit from the PRE. 

Now all of you have heard of the recent changes which have occurred. The main one applies to all owners: each time a principal residence is sold, the taxpayer must report it. Previously the filing was elective and was required only in limited circumstances. The failure to report will imply that the year of sale will never be statute barred to the CRA. In practice CRA would be in the position to review and to reassess at any time without limitation which is normally the case after 3 years and absolutely the case after 7 years, so…. don’t forget to report! 

The new rules have also limited the types of trusts being able to qualify as a vehicle holding principal residences.

Finally be aware that when you change the use of the principal residenceyou are deemed to have sold it and reacquired it and this is a disposition for tax purposes.  

What is the impact of the above? You should never assume that tax rules are straightforward. In that area as it is the case when dealing with the sale or purchase of a property, you need experienced but also reasonable professional advisors. You can be assured that I will always follow that principle!