On October 3, 2016 the Minister of finance, Bill Morneau, announced a major change of the rules regarding the Principal Residence Exemption. A few key points:
- Taxpayers will be required to report the disposition of property for which the principal residence exemption is claimed.
- The CRA will gain the authority to assess taxpayers, beyond the normal assessment limitation period for a tax year, in respect of a disposition of real estate by the taxpayer ( or a partnership of which the taxpayer is a member), in cases where the disposition is not reported in the taxpayer’s tax return for the year in which the disposition occurs.
- An individual who was not resident in Canada in the year the individual acquired a residence will not—on a disposition of the property after Oct 2, 2016 –be able to claim the exemption for the year.
- Trusts will be eligible to designate a property as a principal residence for a tax year that begins after 2016 only if additional eligibility criteria are met. For example, the trust’s beneficiary who, or whose family member, occupies the residence for the year will be required to be resident in Canada in the year, and will be required to be a family member of the individual who creates the trust.