The question popping up at this time of year is relating to the sale of your home and your tax obligations. Here are some important things you need to know about your reporting requirements:
PRINCIPAL RESIDENCE EXEMPTION
When you sell your own home (also referred to as your principal residence) you usually don’t have to pay tax on any profit from the sale. But you may not know that it became mandatory in 2016 that even if you are entitled to the principal residence exemption, you need to report the sale on your income tax and benefit return.
You must include on your tax return income from property sales other than your principal residence.
“If you purchased a property with the intention to re-sell it and make a profit, or you bought a home to renovate and re-sell, your profit is taxable.”
The profit from the sale of a secondary home, such as a cottage or a rental property also needs to be reported. In some situations this profit is considered business income; in other situations, it is considered to be a capital gain. There may also be GST/HST implications.
KNOW YOUR OBLIGATIONS
Understanding your obligations is crucial to ensuring you are not subjected to penalties. The Canada Revenue Agency has increasingly been identifying cases where taxpayers did not report their income from real estate transactions. The penalties and interest associated with unreported real estate sales can be substantial, so make sure you get some advice from a trusted tax professional on how to report correctly if you are unsure.