The long-standing administrative policy of the CRA was not to
require an individual to report the disposition of a principal
residence if there was no capital gain remaining after applying the
PRE. It was only necessary for individual taxpayers to file the
Form T2091 to designate a property as a principal residence where
there was a capital gain to report (e.g. in a situation where the
property was not the taxpayer's principal residence for all of
the years or if some portion of the property did not qualify for
Starting in 2016 (i.e., for dispositions of a principal
residence that occur on or after January 1, 2016), the CRA now
requires that the sale of a principal residence be reported on
Schedule 3, Capital Gains on the taxpayer's T1 return
in order to qualify for the PRE.
The Schedule 3 has been revised to permit a designation of a
property that was disposed of to be a principal residence. The
Schedule requires the disclosure of the year of acquisition, the
proceeds of disposition and a description of the property being
designated as a principal residence. It should be noted that deemed
dispositions of a principal residence will also be required to be
reported on the T1 return, such as deemed dispositions arising as a
result of a change-in-use or the death of the owner.
In a news release dated March 6, 2017, the CRA states that if
the home did not qualify as a principal residence for every year it
was owned by a taxpayer, the taxpayer would have to report the part
of the capital gain on the property that relates to the years for
which the property was not designated as a PRE. In order to do
this, the taxpayer is required to complete Form T2091, as well as
completing the applicable sections of Schedule 3 on page 2 of the
Schedule. In the case of the estate of a deceased taxpayer, the
designation of a PRE would be made using Form T1255.
If a taxpayer sold more than one property in the same calendar
year and each property was at one time, a principal residence of
the taxpayer, the taxpayer must show this by ticking box 3 at Line
179 on page 2 of Schedule 3 and by providing the applicable
information requested for each property on the same page. In
addition, the taxpayer may have to complete a separate Form T2091
for each property to calculate the amount of the capital gain, if
any, to report.
As a result of these new reporting requirements, the PRE will
only be allowed where the sale and designation of the principal
residence is reported on the taxpayer's tax return. This is a
substantial change in administrative policy and may have harsh
consequences to taxpayers unaware of the change.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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