In 2016, the Department of Finance introduced significant changes to the principal residence exemption rules under the Income Tax Act (Canada). The mandate of these changes was specifically to “improve tax fairness by closing loopholes surrounding the capital gains exemption on the sale of a principal residence”. The proposed changes to the principal residence exemption rules effectively limit the ability of certain taxpayers to reduce or eliminate the capital gain on the sale of their home.
Starting with the 2016 taxation year, individual taxpayers are required to report the sale of their principal residence on their personal income tax returns. Failure to appropriately report is subject to penalties of up to $100 for each month overdue up to a maximum of $8,000. The CRA has taken the position that during the transition year (2016), penalties will only be applied in extraordinary circumstance.