Sale of Principal Residence-Changes In Tax Rule, Disclosure And its Tax Treatment

Under the current rules of Income Tax in Canada, if you dispose of your principal residence, the capital gains that you earn is tax free. Your principal residence could be your detached, semi-detached home, town house, condominium, bungalow, trailer boat or any other mobile home where you ordinarily live. You can choose only one home as your principal residence per year. In case if you own more than one residential property as your residence, you will have to make your choice of principal residence per year.

In case of a married taxpayer, you and your spouse have to choose only one home as a principal residence.

Let us illustrate with the help of one example, you have bought your principal residence in the year 2005 and you lived there until tax year 2013 in which you buy another residential property and lived there for some time before you disposed off the second property in 2016.

Choosing your first residence as your Principal Residence for all the tax years:

Under the circumstances, you have a choice of either treating the first residential property (which was bought in the year 2005) as your principal residence for the tax year 2005 to 2016 and pay the capital gains tax on the second residential property that you disposed off

Or

Choosing your second residence as your Principal Residence for all the tax years:

Consider your second residential property (bought in 2013) as your principal residence and not pay any capital gains tax at the time of its disposition. However, it should be noted that your first residence will not be considered as principal residence for the years 2014, 2015 and 2016.The capital gains tax will be payable at the time of disposition of your first residence.

Change in the Tax Rules:

1)      Until now there is no requirement to disclose if you sale your principal residence during the year. Now, if you sale such a residence, it will have to be disclosed along with the exemption on Schedule 3. This applies after sale of your principal residence on or after October 02, 2016

2)      Also, you should note that if you use part of your principal residence for producing income e.g. when you rent out your basement or whole residence or when you use if to claim home office expenses, you may have to pay capital gains tax on the part of your home that was utilized for claim of home office expenses or income producing.

Disclaimer: Any discussion on this blog relating to tax matters is purely for educational purposes and not taking any specific actions based the general tax rules described therein. Your tax situation could be different and as a result there may be different tax strategies applicable in your case. We do not claim the tax situations described above to be exhaustive or conclusive. In case of any specific tax situations or problems, you are advised to seek professional advice.

New Home Accessibility Tax Credit (Schedule 12)

New Non-refundable Credit

For 2016 and subsequent years, a qualifying individual or an eligible individual can claim a non-refundable tax credit for eligible expenses incurred for work performed or goods acquired for a qualifying renovation.

The Maximum Amount of Credit:

The maximum amount of eligible expenses that can be claimed for an eligible dwelling is $10,000 ($20,000 in the case of involuntary separation) per year for a qualifying individual resulting in a non-refundable tax credit of $1,500 ($10,000X15%).

Where there is more than one qualifying individual for an eligible dwelling, the total expenses claimed by a qualifying and all eligible individuals for a year cannot be more than $10,000.

The claim can be split between the qualifying individuals and eligible individuals. If they cannot agree on what amount each person can claim, the CRA will determine the amounts.

Who is Qualifying Individual?

A qualifying individual is someone who is eligible to claim the disability tax credit at any time in the year or and individual who is 65 years of age or older at the end of the year.

An eligible individual includes the spouse, common law partner and supporting relatives of a qualifying individual. A supporting relative is an individual that has claimed the amount for an eligible dependant (Line 305), credit for an infirm dependant (line 306) or caregiver amount (line 315).

What is Eligible Dwelling?

An eligible dwelling is a housing unit located in Canada and it must be a principal residence of the qualifying individual at any time in the tax year. In cases, where a qualifying individual has more than one principal residence, the total of all the eligible expenses cannot exceed $10,000 for the purpose of this credit.

What is Qualifying Renovation?

A qualifying renovation is a renovation or alteration that is of an enduring nature and an integral part of eligible dwelling.

The renovation must allow the qualifying individual to gain access to or to be mobile or functional within the dwelling or reduce the risk of harm to the qualifying individual within the dwelling or gaining access to the dwelling.

Generally, the item that is bought and that becomes a permanent part of your dwelling house is not eligible for this credit.

The eligible renovation can be either done by the outside professionals like electricians, plumbers, fitters, carpenters, architects and can qualify for the purpose of this credit or it can be done by the taxpayer himself. If this is the case then value of all the materials and items bought for the purpose shall qualify for the credit but not the notional value of the labour.

Separate Schedule 12:

A separate Schedule 12 has been prescribed for its calculation.  

Disclaimer:

Any discussion on this blog relating to tax matters is purely for educational purposes and not taking any specific actions based the general tax rules described therein. Your tax situation could be different and as a result there may be different tax strategies applicable in your case. We do not claim the tax situations described above to be exhaustive or conclusive. In case of any specific tax situations or problems, you are advised to seek professional advice.