If you sold your home in 2016, you may have noticed that you had to report it on your income tax and benefit return even if it was your principal residence. With all the talk of Capital Gains tax increases in the media these days, it is important to note that if the property you sold was your principal residence, meaning this is where you lived, from a tax perspective nothing has changed: you are still eligible for the full exemption on the profits made from the sale of your home (Principal Residence Exemption). “There is no “new tax” involved – only a requirement that we report the sale details on our tax returns.”
What is the Principal Residence Exemption?
In Canada, when you sell your own home (the home you live in), you do not have to pay taxes on the profits made through increased value (capital gains). This is very important for Canadian homeowners since it is estimated that collectively we have approximate $3 trillion in home equity, and for many of us, our homes are often our largest financial asset.
Other properties that you may own that are not your principal residence do not qualify for this exemption, therefor you would have to pay capital gains tax.
Why the change?
According to the Canada Revenue Agency, “This change will improve compliance and administration of the tax system.” To put it simply, it is to help them better track the sale of all property in the country and to ensure that no one is taking advantage of the exemption. “When it comes to taxes, not everyone plays by the rules.”
- Make sure to report the sale of a principal residence on your 2016 tax return!
- Nothing has changed, if it was your principal residence you will be exempt from paying capital gains tax; you will still get the same tax break as always!
- This has nothing to do with the news stories we have been hearing about Capital Gains taxes for investors and speculators!
- It is just a means to ensure that everyone is playing by the rules!