Principal Residence Exemption: New Legislation and Reporting Rules

Starting in 2016 tax year, all taxpayers are required to report basic information on their income tax return when their principle residence is sold in order to claim the principal residence exemption. The information that must be disclosed includes:

·        date of acquisition,

·        proceeds of disposition, and

·        description of the property.

The information needs to be included in Schedule 3 and filing it with the T1 Income Tax Return for the relevant year.  Schedule 3 has been modified accordingly.  Form T2091 (or Form T1255 – for a deceased individual) is still required for the designation in cases when the property was not the taxpayer’s principal residence for all of the years of ownership. This is also the case in deemed disposition situations like when a change of use occurs on the property.

If a taxpayer doesn’t make the appropriate filing, then the CRA (tax department) can impose a penalty.  The penalty is the lesser of the following amounts:

1. $8,000; or

2. $100 for each late filing month.