There is a lot involved in selling a house in Canada. There is all the real estate stuff – setting a price, listing the house, arranging open house viewings, dealing with offers to buy, negotiating with potential buyers, finding a closing agent, and closing the sale. This list is by no means comprehensive and includes only real estate-related items, but it is clear why most people hire a real estate agent to sell their home. Most people do not have the expertise to deal with all the elements of selling a home, and pretty much nobody has the time. Just as you hire a real estate agent to deal with the home-selling process, you should hire a lawyer to deal with the legal aspects of selling your home. Selling a home has considerable legal ramifications, particularly with respect to taxation issues. Having a lawyer on your side can help you avoid costly pitfalls.
There are Tax Implications, Reporting Requirements When Selling Your Home
Most people selling their home do not have to pay any taxes on the amount they gain from the sale over their original purchase price. This is because of the principal residence exemption, which applies if the property sold was used only as your principal residence for the entire time you owned it. For most people, it is a simple matter to show that the home was your principal residence, as the vast majority of homeowners own a single home and live there.
Even though that is the case, the Canada Revenue Agency requires that anyone selling a residential property, whether a principal residence or not, must file a pair of forms regarding the transaction. One is a statement of capital gains on the sale – even if you actually lost money on the sale and your capital “gains” are negative – while the second form is where you inform the CRA that the property was your principal residence for all of the years you owned it. These forms are filed along with your annual income tax and benefit return for the year in which you sold the property. Late reporting can result in penalties.
CRA is Cracking Down on Reporting Compliance
The CRA began requiring reporting related to the principal residence exemption in 2016. Starting last year, CRA began cracking down on claims of the exemption. In 2019, the CRA dramatically increased tax assessments on the sales of residential properties over 2018. The CRA assessment of taxes on such sales in 2019 increased by C$171 million, up 65% from the previous year, with the CRA assessing C$57 million in penalties, more than double the amount assessed in 2018. The numbers clearly indicate that the CRA is scrutinizing claims of the principal residence exemption, making it all the more important to ensure that your filings are timely and they accurately set forth your eligibility for the exemption.
If You are Planning to Sell a Home in the Toronto Area, Talk to Beganyi Professional Corporation
Selling your home carries with it legal reporting obligations and potential tax implications. Beganyi Professional Corporation is ready and able to assist with any residential real estate sale you are contemplating in the greater Toronto area, including Mississauga, Brampton, Oakville, Hamilton, and Milton.