Blog: Did you know? Changes to the Principal Residence ExemptionDecember 6th, 2016
From our annual Tax Tips guide, here are the tips and suggestions related to changes to the Principal Residence Exemption in 2016.
The Liberal Government announced some changes to the tax rules associated with the disposition of a principal residence and the eligibility for the principal residence exemption (PRE). Please refer to Crowe Soberman LLP’s October 2016 Tax Letter for details on the new tax measures.
In summary, the following new rules have been introduced:
- A non-resident will not be eligible for the PRE in respect of the year a property is acquired unless he/she was a resident of Canada in that year.
- Only certain trusts will be eligible to claim the PRE. Many ordinary family trusts holding a principal residence that is inhabited by one or more beneficiaries will have restrictions on the PRE under the new rules. There are transitional rules that will allow such trusts to utilize the PRE on the accrued gain on the property up to December 31, 2016. Any future appreciation in the property would be subject to tax.
- The property can be distributed to one of the beneficiaries (only to the extent he/she ordinarily inhabits it) on a tax-deferred basis. The beneficiary can then sell the property and claim the PRE personally. The transfer of the property from the trust to the beneficiary can occur after December 31, 2016, but the beneficiary must continue to ordinarily inhabit the property if he/she wants to fully shelter the gain with the PRE on a future sale. Note that the trust itself will no longer be eligible to claim any portion of the PRE in respect of gains accrued after December 31, 2016.
- All dispositions of principal residences must be reported on Form T2091, whether or not the gain is sheltered by the PRE. Penalties for non-compliance will apply. Reporting requirements apply for the 2016 and future tax years.
- CRA may reassess a taxpayer’s return beyond the three year normal statutory asssessment period when a disposition of a principal residence is not reported.
Our annual Tax Tips can assist you in your tax planning presenting some quick ideas and strategies for you to employ. Please take the time to review your 2016 tax situation and call us for specific recommendations tailored to meet your needs. We will be pleased to work with you on these and other tax-savings ideas.
Click here to download a full copy of the Tax Tips 2016 Guide (PDF).