Principal Residence Exemption: Changes


Blog by Arnold Shuchat | October 5th, 2016


I have always advocated that Canadians need to be involved and interacting with their governments in between elections instead of during elections.
I am happy to say that any time I did write my elected officials, I not only received a response but I more often than not woke up one day to find that a suggested policy was actually enacted.

I am pleased that our current Liberal government through its Finance Minister finally made a policy decision regarding limiting the availability of the Principal Residency Exemption that was desperately needed and which I personally have been advocating for over the last two years, both in this blog forum of my web page, in local and national newspapers, and most recently in meetings with senior Canada Revenue Agency real estate auditing staff.

A principal problem as I explained it was that non-residents could purchase a real property and sell it shortly thereafter, regardless of whether they lived in it or not as there was no real mechanism in place to enforce compliance with the requirement that the gain on the sale be reported, that it was in fact a principal residence, or that it was even capital property required to be held "for a lasting and enduring benefit".  It is most likely that if the non-resident reported it at all, it would be at least in time for tax season in the following year, long after the money was pocketed.  In my mind, the money that likely disappeared from this missuse far outweighed the money that could be captured by the routine audits of "non-filers" where it would be like trying to get blood from a stone.

Were we to limit the principal residency exemption in some way to Canadians either via a term residency test or via a citizenship requirement, we could either severely limit the abuse of the exemption, or collect a lot more taxes.  By the government excluding permanent non-residents from enjoying tax-free gains on residential property in Canada, there will be a substantial relative and preferential benefit available to Canadians that was not available before.

Hopefully, enforcement and penalties will increase and going forward, it finally appears that as I recommended, a "Designation of Principal Residence" form will be required for anyone seeking to claim an exemption, and, it will be limited to only one property per family unit. The key factor is that if the buyer is not a permanent Canadian resident at the time of purchase, there will be no principal residence exemption to shelter the entire gain from Canadian income taxes.

Well done!

For details about this and other changes, please visit: http://www.fin.gc.ca/n16/data/16-117_2-eng.asp and:

http://www.cra-arc.gc.ca/gncy/bdgt/2016/tc02-eng.html

http://www.cra-arc.gc.ca/gncy/bdgt/2016/qa11-eng.html