Tax Considerations When Buying or Selling a Home
Buying or selling a home is often an exciting, yet stressful time for most. This article highlights several important tax considerations to be mindful of when buying or selling a home.
The Principal Residence Deduction
The principal residence deduction allows individuals and families to avoid paying taxes on the sale of their primary place of residence. Each year, an individual or family can designate one property that they own as their principal residence as long as the property is primarily used to live in by the individual/family.
SALE OF A PRINCIPAL RESIDENCE
CRA now requires individuals to report the sale of their principal residence on their personal income tax return in the year the property was sold. In many cases, the principal residence deduction eliminates any taxes that would otherwise result from the sale. However, disclosure of the sale is still required.
To report, the taxpayer must disclose the address of the property, the year it was purchased, as well as the proceeds from the sale. Failure to report the sale of a principal residence can result in penalties and/or denial of the principal residence exemption.
Renting & Flipping Property
If a property is purchased with the primary purpose of renting or selling it, the property is not eligible for the principal residence deduction and the subsequent sale will cause a taxable capital gain or loss.
It is the original intention when the property was first acquired which is the determining factor.
Homebuyers’ Amount
The CRA provides a $5,000 tax credit to first-time homebuyers (those who did not live in another home owned either by themselves, their spouse, or common-law partner in any of the four previous years). To qualify, the property must be purchased with the intention of the individual/family occupying it as a principal residence within one year of purchase.
Homebuyers’ Plan
First-time homebuyers may also be able to withdraw up to $35,000 from their RRSPs to help purchase or build a home as long as the withdrawn amount is repaid within 15 years.
GST/HST Rebate for Newly Built Homes
If you have bought a newly built home, or have substantially renovated a house to use as your principal residence, you may qualify to receive a rebate for some of the GST/HST that you paid on the purchase through the CRA’s GST/HST new housing rebate.
By making yourself aware of potential tax planning opportunities before you buy or sell a property, you can avoid an unexpected bill from the taxman. After all, nobody likes surprises at tax time.
Disclaimer: Avisar Chartered Professional Accountant’s blog deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein.
Although every reasonable effort has been made to ensure the accuracy of the information contained in this post, no individual or organization involved in either the preparation or distribution of this post accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.
