Selling the Cottage? Remember New CRA Reporting Rules Will Affect You

Are you planning to sell a personal residence, such as your cottage, in 2017? If so, refresh your tax compliance requirements by making an appointment with a tax specialist before you sell. 

New reporting rules started this past tax season and they affect everyone who sells a residence. That’s so even if the property is your tax-free principal residence for each year you owned it. The reporting is done on Schedule 3 of the tax return and the information required includes the address of the property, the year of acquisition, the proceeds of disposition, and whether the property will be designated as your principal residence for the entire ownership period or only a portion.

If the property is not designated as your principal residence for all years of ownership, a complicated form must be filed to determine the portion of the gain that is taxable. It’s called a T2091 Designation of a Property as a Principal Residence by an Individual (Other than a Personal Trust). Any non-exempt gain will be reported on Schedule 3 and one-half of the non-exempt gain will be added to the seller’s income. The taxable gain could be spread over up to five years if the full proceeds are not received in the year of sale.

It’s expensive not to comply fully with these new rules: penalties for late reporting of a principal residence sale will be $100 per day, to a maximum of $8,000.

However, because the CRA can look back to the 2016 tax year for any audit activity in the future, it’s important to keep good notes on the reasons for the disposition. As reported last week, CRA has recently cracked down on real estate transactions in which the intention was to make a profit by flipping the property quickly. That has income tax consequences, but could have GST/HST consequences too. If the intention is the flip the property, or if the residence is outside of Canada, the home will not qualify for the new housing rebate on GST/HST paid.

It pays to see a tax professional to check out your obligations to report a sale, transfer or deemed disposition of a personal residence anytime after 2015. There are additional rules for non-residents or trusts which hold a principal residence.

Further, if you have a taxable consequence, remember that your quarterly tax remittances may be affected, too. Have your tax specialist estimate the amounts payable in 2017 and 2018 in that case.

Evelyn Jacks is President of Knowledge Bureau, Canada’s leading educator in the tax and financial services and author of 52 books on family tax preparation and planning.

©2017 Knowledge Bureau Inc. All Rights Reserved. Used with Permission.

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