My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned. Please note the blog posts are time sensitive and subject to changes in legislation or law.

Monday, April 9, 2018

Confessions of a Tax Season Accountant - Late T-slips and Reporting the Sale of Your Principal Residence

In today's tax season confession, I will provide an update on the required reporting when you sell your principal residence. I also include my annual rant, about the fact many of my clients must wait until late March or early April to receive their final T-slips.

Condensed Tax Season


Just to be consistent with the prior 7 years, I will again complain about the condensed nature of tax season. I receive about 65% of my clients returns after March 31st, causing a crazy April. The delay is typically caused by clients waiting for their T3 and T5013 tax slips (you would not believe the amount of emails and faxes I received last week with just arrived T3's and T5013's). I ponder why, with current technology, that all filing deadlines for T4’s, T5’s, T3’s and T5013’s cannot be moved up by 15-30 days, so everyone has adequate time to file their tax returns. I guess this is one of life’s little mysteries.

Principal Residence Exemption Rules


As discussed in this October 2016 blog post on the new Principal Residence (“PR”) reporting requirements, you must now report the sale of your PR (typically your house but can also be your cottage) on your tax return.

For 2016, you just had to report the sale on schedule 3, unless the gain was not fully exempt, in which case you had to file Form T2091 (IND) Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust). However, for 2017 and any future years, you must now file schedule 3 and Form T2091 in all cases.

If you designate your home/cottage as your PR for all the years you owned it on schedule 3 (box 1), other than the free plus 1 year, (you may recall the formula to determine the exempt portion on the sale of your PR is the capital gain on the sale of your PR, times the ratio of the number of years you have lived in your home [i.e. designated the home as your principal residence] plus 1, divided by the number of years you have owned the property) the form is fairly simple to complete. You just need to fill out the first page of the T2091 form. You will need to include the following information:

  • the year of acquisition of the property you sold
  • the proceeds of disposition 
  • the address of the property being designated as a principal residence 
  • the years you owned the property and are designating as your principal residence.

Penalty


There are stiff penalties for not filing the PR designation on time. New paragraph 220(3.21)(a.1) will allow for late-filed forms subject to certain time restrictions. The penalty will be the lesser of the following amounts:

  • $8,000; and
  • $100 for each complete month from the original due date of the relevant income tax return to the date that your request for a late-filed designation is made in a form satisfactory to the CRA.

The CRA says on their website that a penalty may apply where the PR election is late-filed. I would work on the assumption the penalty is applicable and you will need the CRA to be merciful to have the penalty removed.

It is also important to note that if you do not file the T2091 form, your return can be re-assessed at any time. This means the usual statue barred period of 3 years is not applicable and your return remains open until the end of time or three years from when your return is assessed, when you finally file the form.

If you sold your principal residence in 2017, simply put, complete schedule 3 and file Form T2091, or there may be punitive repercussions.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation. Please note the blog post is time sensitive and subject to changes in legislation or law.