For many years, the Canada Revenue Agency has had an administrative position that did not require individuals to report the sale of their principal residence on their tax return in the year they sold their house (under a few conditions). This position changed in 2016!
For 2016 onwards when a taxpayer sells their principal residence they are required to report the disposition on their tax return. For many taxpayers, there will be no tax (as the case in the past), however, failure to report the disposition on the taxpayer’s tax return will now result in heavy penalties and interest.
The principal residence designation form, required to be filed with the taxpayer’s tax return (the form required to be filed to make the sale of the taxpayer’s principal residence tax-free), is an information return. Per the Income Tax Act, the late filing of an information return results in a penalty of the lesser amounts of:
- $8,000; or
- $100 for each complete month from the original due date required to file the form (generally April 30 following the year of disposition) to the date the form is filed with CRA (to CRA’s satisfaction).
The penalty can be quite substantial, especially since the disposition of the taxpayer’s principal residence is usually tax-free. Due care is needed to file the principal residence designation form on time and completed to CRA’s satisfaction.
If you have sold any properties in 2016 or onward, please contact me and I’ll be able to help you file your personal tax return with the necessary disclosures required by Canada Revenue Agency.