All Dispositions of Principal Residences Must be Reported

Nov 7, 2022

On October 3, 2016, the Federal Government proposed changes to the Income Tax Act (the “Act”) and administrative policies that will impact claiming the principal residence exemption. Prior to the proposed change, the CRA did not require taxpayers to report the sale of a principal residence when the principal residence exemption protected the full amount of the gain. However, for years that end after October 2, 2016, (which includes the 2016 taxation year), the CRA now requires an individual to report on Schedule 3 of their T1 income tax return the disposition of a property for which the principal residence exemption is claimed. The information required includes the address of the property, the date it was acquired and the amount of the proceeds of disposition. This reporting is necessary to claim the full principal residence exemption. Dispositions include deemed dispositions, for example when you change your residence to a rental property, and not just actual sales of the property.

In cases where the property was not your principal residence for all the years that you owned it, individuals will be required to file Form T2091 (or Form T1255 if acting as the Legal Representative of a Deceased Individual).

Failure to report the sale and designation of a principal residence will result in the principal residence exemption being disallowed – though the CRA may accept late filed elections in certain circumstances with a late filing penalty of the lesser of $8,000 or $100 per month for which it was overdue. If you disposed of your principal residence in 2016, make sure you report it in your 2016 income tax return.

The content of this article was written in general terms and is intended as broad guidance only. It cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. To discuss your specific situation, give me a call.