Principal Residence Exemption (PRE)
Generally, taxpayers are exempt from paying capital gains tax when their primary homes are sold. Historically, no filings/disclosures were required in order to qualify for the exemption.
For 2017 and forward, taxpayers are required to report the disposition, including basic details such as the year acquired and purchase and disposition prices. The tax treatment doesn’t change, but disclosure is required in order to qualify for the exemption.
The key point is that the exemption is no longer automatic. Disclosure must be included as part of your personal tax filing for the year in which the property is sold. If it is omitted, your return can be amended but you could be subject to penalties on the late filing of the disclosure.
Why does this matter? Is there an opportunity for planning here? There certainly is!
When your family unit (parents and children under 18) owns more than one property, you may be eligible to designate different residences to specific years. You can only designate one principal residence per year, so the goal would be to use the exemption for the property with the higher gain.
In order for the PRE to be available the property must be “ordinarily inhabited” by the taxpayer, spouse or one of their children. There is no minimum period specifically defined for this requirement. CRA acknowledges that seasonal residences would be considered ordinarily inhabited if used during vacation, as long as the main purpose for owning the property is not to earn income.
Why is this important for 2017?
Many of our client’s own properties in Alberta and British Columbia. With the release of BC’s 2018 Budget and the introduction of the Speculation Tax, it may be beneficial to consider which property is designated as your principal residence. With current provincial tax rates being very comparable between AB and BC, choosing a BC residence may reduce the implications of the Speculation Tax in future.
- Disclose dispositions of principal residences as part of your personal tax filing
- Designate specific properties to specific years to shelter as much gain as possible
- If applicable, consider province of residency to reduce application of Speculation Tax
Let us know if you have sold your residence and we can take care of the rest!
Enhanced Tax Credits
Canada Caregiver Credit
The Canada Caregiver credit is a new non-refundable tax credit that replaces the family caregiver credit, (the credit for infirm dependents aged 18 or older) and the caregiver credit. This new credit is intended to simplify the credits but there are a few changes:
- the credit is reduced dollar-for-dollar by the dependent’s net income of $16,163;
- the dependent is not required to live with the caregiver in order to claim the credit; and
- it is not available for non-infirm seniors who reside with their adult children/grandchildren.
This credit becomes more important as we assume care for aging parents and as their health situations require changes in their living conditions or requirements.
Eliminated Tax Credits
The Children’s Arts and Fitness tax credit has been eliminated for the 2017 taxation year, and the public transit tax credit was eliminated as of July 1, 2017. If you have transit expenses for January through June 2017, this will be the last year those are included.
The Education and Textbook tax credit was also eliminated for the 2017 taxation year. The Tuition tax credit has not changed and is still eligible. If there are unused education and textbook credit amounts carried forward from prior years, these can still be applied until they have been used.
The CRA has developed several mobile web apps for scheduling instalment payment reminders and checking various balances (in specific circumstances). The abilities of these apps are somewhat limited and perhaps not as helpful as they could or should be. It’s great to see CRA moving in the right direction, but we predict it will be some time before we see genuine value. We will keep you posted as developments occur.