Selling a home involves a lot of paperwork, and a big part of this includes accounting and taxes. Any gains you make on the sale of your primary residence are generally tax-free. This is thanks to the principal residence exemption.

 

Reporting Your Sale

If your property was sold in 2020 and counted as your principal residence, it’s important for you to report the sale. You also need the property to be designated under Schedule 3, Capital Gains (or Losses). Additionally, you must complete a few forms: Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust) and Form T2091 (IND). It’s worth noting that only the first page of Form T2901 is necessary if what you sold was your principal or main residence the whole time, or with the exception of a year wherein you replaced it.

The Canada Revenue Agency (CRA) only lets the principal residence exemption apply to principal residence sales from 2016 onwards if the designation and disposition of the property are reported on the benefit return and income tax. Working with a Canadian accounting professional is incredibly useful at this stage, as it is important to report your sale on time.  There are some circumstances when the CRA will still take in a late designation, but those can come at a price. You will likely have to pay a penalty.

 

Non Principal Residence Ownership

If the home was not your principal residence every year you owned it, there is still reporting to be done. Specifically, when it comes to the years that it wasn’t your principal residence, it is important for you to be able to report some of your capital gains from the property at that time. This requires your completion of Form T2901(IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust). Additionally, fill out the parts of Schedule 3’s sections that are applicable, following what it says on the schedule’s second page.

Since the property falls under the category of personal use, any losses on the sale will not be available for you to claim.

When part of the home you sold was used for generating income, the adjusted cost base alongside the selling price must be split between the residential part and the income-generating one.

 

Conclusion

There is a lot of paperwork that goes into selling your principal residence, whether or not it was your principal residence for all the years you owned it. This applies even after you’re considered to have already made the sale. Working with professionals offering tax and accounting services in Canada is ideal for making sure you don’t miss out on anything and that things are filed on time.

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