On October 3, 2016, the Minister of Finance tabled a Notice of
Ways and Means Motion to amend the principal residence exemption
rules in the Income Tax Act (Canada). These amendments not only, as
advertised, restrict the ability of non-residents to claim the
principal residence exemption, but also restrict the ability of
certain trusts to do so, and eliminate the Canada Revenue
Agency's policy of not requiring taxpayers to report
dispositions of principal residences in certain circumstances.
The "One-Plus" Rule
The "one-plus" rule, which is designed to allow a
taxpayer to claim the principal residence exemption on both the
house he/she sells in a year and the house he/she buys in the same
year, will be amended to preclude a taxpayer who is not a resident
of Canada during the year in which he/she buys a house from using
that rule to claim the house as a principal residence in that
In order for a house to qualify as a trust's principal
residence for a taxation year that begins after 2016 the trust will
have to be an eligible trust. Only inter vivos or testamentary
spousal or common-law partner trusts, alter ego trusts, joint
spousal or common-law partner trusts, certain pre-1972 spousal
trusts, self-benefit trusts, qualified disability trusts, and
certain trusts (inter vivos or testamentary) the settlor of which
died before the start of the year might qualify as eligible trusts.
Many family trusts which hold personal residences will not
Reporting the Disposition of a Principal Residence
In the past, the Canada Revenue Agency ("CRA") has not
required a taxpayer to report the disposition of a house regarding
which the principal residence exemption is claimed sufficiently to
fully negate the gain on the sale of the house. However, the CRA
announced that this is no longer the case. For sales of houses on
or after January 1, 2016, the taxpayer will be required to provide
basic information in the taxpayer's income tax return for that
year in order to claim the exemption. Failure to report the sale
and designate the house as a principal residence will result in
denial of the principal residence exemption. Thankfully, the CRA
will be authorized to accept late-filed principal residence
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