If you buy or sell your principal residence in Canada, since 2016 you have to report the sale on your income tax return. This ensures that only those who are entitled to the principal residence exemption can claim it.
A principal residence can be any type of housing unit including a house, cottage, condo, apartment, trailer, mobile home or houseboat. It qualifies as a principal residence if you own the property alone or with another person, you, your spouse or children lived in it for some point during the year and you designated the property as your principle residence.
You can only have one principal residence at a time. If you sell your principal residence and buy another in the same year you can use the “plus one” rule when calculating the principal residence exemption amount. This allows you to claim for both properties but only one can be designated as your principal residence.
What is the Principal Residence Exemption?
When you sell a housing unit you may realize a capital gain which can be taxable. However, under the Principal Residence Exemption rules this capital gain may be reduced or eliminated if the property was your principal residence for all the years that you owned it. If it was not your principal residence at any time, then you may have to report capital gains.
What Happens if you Don't Report the Sale
If you do not report the sale on your income tax, or don't make the designation then you will have to ask the CRA for an amendment to your return for the related tax year. The CRA may accept a late designation but you may have to pay a penalty.
For more information on buying and selling your principal residence visit: https://www.canada.ca/en/revenue-agency/news/newsroom/tax-tips/tax-filing-season-media-kit/tfsmk27.html
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