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Do we have to declare a capital gains on a principal residence?

May 15 2017 by Denis Doucet
What you'll learn
  • When should we report a capital gain or loss?
  • How and when to declare it?

Since 2016, any homeowner who sells h/her principal property with a capital gain or loss must declare it in Schedule 3 of their provincial income tax returns despite a tax exemption for Canadian residents.

Renting or selling a property

The declaration must be made only if your property is sold. In addition, if the use of your residence changes (renting it instead of living in it/or using part of your home for business purposes) you will have to report the realized capital gain effective the year of the change. The portion of your home used as an office, as well as some common areas will be considered to have been used for business purposes.

The Proportional Value of Acquisition Cost and Other Expenses will be deemed your "Adjusted Cost Base”. Any positive difference in the sale price (in proportion to the space used) will become your declared capital gain. Failure to declare the sale of your principal residence can be subject to penalties of up to $8,000 as the tax authorities do not have time limits to revise your return. That means they can impose a late penalty @$100 per month multiplied by the number of months late, to a maximum of $8,000.

Looking to rent out your home? Be sure to read our article.

grosse maison

The addition of a secondary residence

Consider the following situation. You separate from your spouse and to provide a stable environment for your children, you decide to keep your principal residence – alternating weeks between your principal residence and another property. Under our tax laws, you have the choice to declare one or the other as your principal residence. In doing so, the other residence is deemed a taxable home.

Quick Flips or Short Holdings

Also, some people use a "Quick Flip" or “Short Holdings” strategy (purchase/renovate/sell) while living in the property to declare it as their principal residence. Since these relocated moves now will have to be declared, the Canadian Revenue Agency could establish that each resale (flip) is a business activity and not applicable to a capital gain exception on a principal residence. To learn more about buying a home, check out this article.

Non-residents

Finally, in addition to this mandatory reporting on the Québec tax return for Québec, the Canada Revenue Agency (CRA) has also introduced specific measures for non-residents with a principal residence in Canada and properties held by trusts.

Your Multi-Prêts mortgage broker can answer all your real estate questions when it comes to buying, selling and refinancing.

Key takeaways
  • You must report a capital gain or loss in Schedule 3 of your provincial tax return:
  • If you sell your property;
  • If you change the use of your principal residence (portion of home used for business purposes);
  • If you rent your residence instead of living it.
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