Changes to the “Plus One” rule
To re-cap, eligibility for the principal residence exemption is on a
year-by-year basis, which might come as a surprise. The more years you
qualify relative to your total period of ownership, the more your gain gets
reduced. To be more precise, here is the basic formula that normally
Despite only allowing one property to be claimed, the rules allow a full
exemption on two residences in a particular tax year, i.e., where one
residence is sold and another is purchased in the same year. That is why
the formula adds “1” to the number of years the property was a principal
residence (hence, the “Plus One” rule).
Effective Oct. 3, 2016, the Plus One rule will not apply where an
individual is not a resident in Canada during the year of acquisition.
Under the previous rules, you could benefit from the PRE for the year that
you purchased a residence in Canada, even though you were not a Canadian
resident in the year of acquisition. This is no longer the case; however, a
non-resident may be able to avoid this result by gifting funds to his or
her resident spouse or child to acquire the property.
Changes to reporting requirements
If your entire gain is covered by the PRE, we had noted that under the
previous rules, you were not required to file the designation form with
your tax return to report the disposition of the principal residence.
However, under the new rules, you are now required to report the sale of
your principal residence and make the designation. This applies for all
dispositions that occur on or after Jan. 1, 2016. If you fail to do so, you
will not be entitled to the PRE. In certain circumstances, the CRA will
accept a late designation of your principal residence, but you could be
subject to a penalty of up to $8,000.
Under the previous rules, the CRA could only reassess you within the normal
reassessment period, which was generally three years after the date of the
original Notice of Assessment (unless certain exceptions are applied). The
new rules clarify that the CRA has the ability to reassess you for an
unlimited period beyond the normal reassessment period (as it relates to
your principal residence) if you failed to report the disposition of your
principal residence, even if such failure to report was purely innocent.
Key points to remember
These are the two main take-aways from these new changes:
There is no longer any flexibility through the use of a family trust for
owning a principal residence (usually popular with the purchase of a
Do not assume that a sale of your home will no longer trigger any tax
compliance on your part. If you sold your home on or after Jan. 1, 2016,
you must report the sale and make the proper designation, or the PRE will
not be allowed.
As always, if in doubt, or if your situation is complicated, it’s prudent
to consult a qualified tax practitioner.
Samantha Prasad, LL.B., is a Partner with Toronto law firm
Minden Gross LLP, a Meritas Law Firm Worldwide affiliate, and specializes in corporate,
estate, and international tax planning. She writes frequently on tax
issues, and is the co-editor of various
Wolters Kluwer Ltd. tax publications.
is an Associate in the Minden Gross Tax Group and focuses on corporate,
estate, and international tax planning.
This article is reprinted from
The Minden Brief – Winter 2017, © 2017 by Minden Gross LLP. Us
ed with permission.
© 2017 by Fund Library. All rights reserved. Reproduction in whole or in
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The foregoing is for general information purposes only and is the opinion
of the writer. This information is not intended to provide specific
personalized advice including, without limitation, investment, financial,
legal, accounting or tax advice.