October 4, 2016
On October 3, 2016 Bill Morneau, the federal Minister of Finance, announced some changes in the way principal residences are taxed. These changes are not likely to have any significant impact on any of our clients; however, I am pleased to see the federal government finally take some steps to try and reign in some of the tax abuse which has been going on.
There are two significant changes and it can be summarized as follows:
- When you sell a principal residence you will now be required to report the sale on your personal income tax return.
- A homebuyer must also file a tax return in the year that they buy a home.
There has always been an obligation to prepare the form designating a property as a principal residence (Form T2091) but there was no obligation to file it unless it was requested by the Tax Department. In the 30 years that I have been practising, I have never once seen a request from the Tax Department for one of these forms. Making filing this form mandatory will make it much easier to determine if the home actually qualifies for the exemption or not. Auditing this claim by the tax department is much easier as well. They can simply look at the land titles records in each province to determine which properties have been sold and then check to see whether the property has been properly reported as either a principal residence or as a taxable transaction.
The obligation to file a tax return in the year of purchase is solely aimed at non-resident buyers. This singular change “puts them on the radar” so that any future claim for the principal residence exemption has some supporting “start point.” While this, in and of itself, will not solve the tax abuse from not reporting gains on such real estate, it will help to flag situations where the principal residence exemption should not be available.
As a final step, I would like to see the Tax Department set up a task force to review all property purchase and sale transactions in the last couple of years (by reviewing land titles records) to determine the extent of the tax evasion which has occurred. This would be a relatively simple matter and would allow them to both quantify the amount of the abuse and to potentially make a claim for unpaid taxes against other properties still owned by tax cheats.
When other people fail to pay their fair share of taxes that means my clients and I have to pay their taxes as well as our own taxes. This makes my blood boil.
–Wendell Meeres, B.Comm., CPA, CA, C.F.P.
