THIS INFO COULD SAVE YOU THOUSANDS OF DOLLARS IN TAX!!!
The Canadian tax system started in 1917 with a 6 page tax return, and has ballooned into a document over 1,400 pages long today. The government makes changes to the rules every year, and for those who do their own taxes or are unaware of the rules – they may end up paying more taxes than they need to, or be penalized for not including information that now needs to be reported. One of the major changes to the Canadian Income Tax reporting requirements that came into effect on January 1, 2016 was in regards to personal home or property sales (your principal residence).
Have you ever heard the term “things were so much simpler in the past”? Well, that is certainly the case when it comes to the new tax laws regarding selling your principal residence. Before 2016, if you sold a house or property that was your principal residence for all the years you owned it – you typically did not need to report the sale or proceeds on your personal tax return. You were able to just take any profits made from the sale and invest it into your next property or spend it however you liked. This all changed on January 1, 2016 when the federal government imposed a new law that requires EVERY house or property sale be reported on an income tax return. (A home or property includes a; house, cottage, condominium, apartment, trailer, mobile home, or house boat.)
If the property sold was your principal residence for all the years you owned it, and it is correctly reported on your tax return, there should be no tax consequences to you. The property sale must be reported on schedule 3 and T2091/T1255 in the tax return covering the year in which it was sold.
“But there are thousands of property sales all the time, why should I bother?” Although some Canadians may have gotten away with this line of thinking on their taxes in the past, the government has recently initiated a nation-wide program and facilities across the country specifically assigned to track and find property sales that have not been reported. The have even assigned over $10 million dollars of their budget towards this task force. If they happen to identify your sale and find that you did not properly report it on your tax return – the penalties start at $100 per month (since the date it should have been reported) up to a maximum of $8,000. They can additionally assess you capital gains taxes on the sale of the property!
The CRA (Canada Revenue Agency) has allowed a grace period over the past couple of years as Canadians learn these new property sales rules. However, very soon, they will feel the laws have been in place long enough and will start enforcing the penalties and taxes on both new and previous sales. The government has even passed a special provision that allows the CRA to go back beyond the normal 3 year period, and re-assess tax payers who failed to report property dispositions in past years.
If you have sold a property since January 1, 2016 and have not yet reported it on your income tax return, it is recommended to immediately make an adjustment to your tax return to either avoid or reduce any penalties or additional income taxes.
If you plan to sell a property in the future, make sure to see a qualified accountant to ensure one of the biggest personal transactions of your life does not incur unneeded taxes and penalties.
Come see the experienced professional accountants at TaxTeam 339 Main Street N Moose Jaw (We have been helping Moose Jaw and area residents to pay less tax legally for over 20 years, with over 140 years of collective tax and accounting experience, we can help you too). NOTE: These rules ALSO apply to those who change the use of a property (from a Principal Residence to a Rental or Business, or vice versa).