Federal government announced change on Oct 3, 2016 to the Principal Residence Exemption.

1. The “One plus” Rule in Computing the Principal Residence Exemption is eliminated for Non-Residents

This “one plus” rule previously applied to taxpayers who were non-residents for tax purposes. That means, a non-resident can still be able to claim a principal residence exemption for 1 year even if they were never a Canadian resident for tax purposes.

Under the new rule, the one-plus year may not be claimed by non-resident.

 

2. Restricting personal trusts to Claim Principal Residence Exemptions

Previously there was no requirement for the beneficiary of the personal trust to be a Canadian resident.

The change limits the types of trusts that can designate a property as a principal residence. For taxation year after 2016, only alter ego trusts, or spousal or common-law trusts, or joint spousal or common law trusts, or testamentary trusts that are qualified disability trusts, or trusts for the benefit of a minor child of deceased parents can make designation. Moreover, the trust’s beneficiary must be resident of Canada, must occupy the property in the year and must be a family member of the trust’s settlor.

 

3. Reporting Requirements on Disposition of principal residence

Previously, CRA does not require reporting of the disposition of principal residence when no tax is payable.

Under new rules, for taxation year after 2016, taxpayers will have to report the disposition of principal residence, including the proceeds of disposition, the acquisition date, and a description of the property even if full principal residence exemption applied.

 

4. Extensions to Reassessment Periods

CRA has 3 years after the initial notice of assessment to reassess taxpayers after they issue the initial notice of assessment.

Under the new rule, reassessment can be made any time after the end of normal reassessment period where the taxpayer does not report a disposition of real estate.

 

How does it affect me?

If you disposed or plan to dispose your principal residency in 2016, or own a personal trust, be aware of the new changes. If you have any questions, please feel free to contact PNC Consulting LLP at 604-732-5762.