Capital gains tax from the sale of your primary residence?
We’ve received a few emails recently from people concerned that they now have to report the sale of their home when filing taxes. The concern is that this may mean the government is looking to charge taxes on the money you make when you sell your home. As you may know, right now you only have to pay taxes (capital gains) on profits from a sale of a secondary home, not your primary residence. Others are worried that because they use their home for a home office, that portion of their home could be taxed.
It wouldn’t shock anyone around here that the government might, at some future point look to start charging taxes on the sale of your home, but as of right now it doesn’t seem to be true.
The concerns arise out of changes the government made requiring you to report the sale of your primary residence. Before 2016 you didn’t have to report it, but changes made by the current government are meant to close loopholes in the tax exemption, primarily to prevent non-residents from using it. For Canadian residents, the change is mostly administrative requiring you to report a description of the property, the date you bought it and how much you profited from the sale.
There haven’t been any changes to the law on how running a business from your home would affect your tax exemption. However, it is possible that the CRA could start interpreting the current law more strictly or enforce it more thoroughly.
CRA documents show that if only part of your home qualifies as your principal residence then you may need to pay capital gains tax on the part of the home used for business, based on square footage. This hasn’t changed recently but the rules and interpretations of what that means for you can be complicated, and you should talk to an accountant about your specific situation.
Two issues that can result in you having to pay capital gains taxes when you sell your home are renting out part of your home and running a business from your home. Rental units aren’t often a problem because if the unit was less than half of your home it usually doesn’t affect the exemption. Home offices can be a bit trickier. If you claim capital cost allowance (CCA) for a home office that portion of the home won’t be eligible for the tax exemption. That usually means that it’s not worth claiming CCA for home offices, because of how it effects the taxes you’ll owe when you sell the home.