Mortgage Broker

BY SAMANTHA GALE, CMBA EXECUTIVE DIRECTOR CMB MAGAZINE cmba-achc.ca fall 2016 | 61 residencetax A Matter of Principal T he federal government made several announcements on October 3, 2016, most of which involve new mortgage rules. But they also included changes to the principal-residence exemption under the Income Tax Act. As most in the mortgage industry know, the principal-residence exemption is used by homeowners to avoid paying capital gains tax on the sale of property that is their principal residence. It is now a requirement of being eligible for the exemption that the tax payor be a Canadian resident. e changes to exemption include the following. Changes for non-residents Under the one-plus rule, when a family sells a residence, it can claim the entire gain as an exemption by designating it as sold in the year prior to the sale. It can then own a new home in the year of sale without jeopardizing the ability to claim the capital gains exemption on the new home during the year it was bought. (is also applies to the former property sold.) is rule is intended to provide people with a full exemption even though they may own two properties (one sold and the other bought) in one year. is one-plus rule is now no longer available to non-residents. New restrictions on property held by trusts Non-residents can no longer claim a principal- residence exemption if the property is held in a personal trust. In 2017, only the following types of trust are eligible to claim a principal-residence exemption, provided that the beneficiary occupying the residence is a Canadian resident: n spousal or common-law partner trusts; n joint spousal or common-law partner trusts; n alter-ego trusts (or similar trusts for the exclusive benefit of the settlor during the settlor's lifetime); n qualified disability trusts; and n certain trusts for the benefit of a minor child of deceased parents. The CRA's new reporting requirements ere are now new principal-residence reporting requirements for all taxpayers. In past years, the Canada Revenue Agency (CRA) has not required taxpayers to disclose the details of the sale of a principal residence on their tax return, but this has changed. Starting with 2016 tax returns, taxpayers will need to disclose the sale of a property to claim the exemption; the year the property was purchased, the years in which the property was used as a principal residence, the sale proceeds and a description of the principal residence will need to be disclosed. In addition, taxpayers can be fined up to $8,000 for failing to properly disclose the required details relating to the exemption. e bottom line is that a homeowner will not be entitled to the exemption if they fail to report the sale in their tax return. Taxpayers should consider amending their tax return if they did fail to disclose a sale of a principal residence, but they will then be subject to penalties for failing to make timely disclosure of the sale. is would appear to be an attempt by the federal government to reduce instances of tax cheating by making taxpayers report residence sales information, which can then be audited and more closely monitored. Taxpayers must now disclose a great deal more information to the government about their primary residence

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