A recent article in the Investment Executive, Beware of pitfalls when selling homes, draws attention to implications that can arise as a result of the changes that occurred to the Principal Residence Capital Gains Exemption. The articles mention some important things to be aware of when selling a home that that could interfere with your tax free status of your principal residence and Estate Planning strategies.
These points are:
- The sale of a principal residence must now be reported on your tax return in the year of sale. The failure to do so could result in exposure to capital gains taxes on your principal residence. You must designate which years the house was the principal residence and you can only have one principal residence at a time.
- Be aware of complications that can also arise when you rent your principal residence or when you own multiple homes at the time of divorce.
- The sale of a residence does not only occur when a simple sale takes place, it can also arise from other scenarios such as dispersement of assets upon death or divorce.
- For a property that is not your principal residence. The cost of upgrades or renovations can be added to a home’s adjusted cost base, which lowers potential future capital gains.
- Residency Status can affect the amount one is able to claim under the exemption.
- There are different rules for eligibility requirements involving trusts commonly used for estate planning (spousal and alter ego trusts).
It is important to understand the rules of the principal residence capital gains exemption as it applies to your situation, as there are multiple variables that can impact your eligibility. Feel free to give us a call to discuss your unique situation. Remember, if you fail to report your Principal Residence Exemption correctly the CRA has the ability to reject the claim and tax the gains. To read the article in full, please click here.