Normally, when you sell an asset (real estate being an example), you must report the gain on the sale and pay tax on that gain. In Canada, you are not required to pay tax on the gain when you sell your principal residence (generally your home). This is known as the principal residence exemption. In the past, since no taxes were payable when you sold your home, you didn’t have to report the sale to the government. Beginning in 2016, the rules changed.
Starting with the 2016 taxation year, the sale of your principal residence must be reported on Schedule 3 of your personal tax return in order to claim the personal residence exemption. For 2017 and later years, Form T2091(IND) must be filed in addition to Schedule 3.
The CRA has created a rather heavy penalty for those who report the sale late. A late filing penalty of $100 per month multiplied by the number of months late filed, up to a maximum of $8,000 can be assessed. Their computers will automatically calculate the penalty and send you the letter.…. and good luck getting anyone at the CRA to reverse it.
Best practices would suggest you make sure that you report the sale of your Principal Residence on time.
