What does Trudeau’s sneaky “principal residence” tax change mean?

Update March 8, 2017:

This post was published on January 13th, 2017 and went viral shortly after. In fact, my last check of the numbers of readers was 100,000+. As a result, it is obvious that some readers pressured the CRA (Canada Revenue Agency) to clarify Item 8 for Reporting the Sale of a Principal Residence. As I just learned today, apparently, that whole section was updated by the CRA on February 28th, 2017.

As a result, it appears that the potential problems discussed in this post no longer applies. However, I have re-read Item 8 and, while I note minor editing, I am still unsure what the change means for self-employed Canadians who use part of their principal residence to earn income. Nevertheless, I will defer to the many tax professionals who commented here that the change is minor. (H/T to Frances and Sarah).

What I also learned since I initially posted this article is not to claim CCA (Capital Cost Allowance) because if you do, when you sell your principal residence, you might owe taxes to CRA. (Sandy Crux)

I wonder how many Canadians know that, as of the taxation year 2016, if they conduct self-employment activities from their principal residence, they may have to report the sale of their principal residence to Revenue Canada.

Justin Trudeau at Winnipeg Convention 1030Yup. PM Justin Trudeau, the PM that continually tells us he is trying to help the middle class, has quietly and sneakily changed that provision as of early October 2016.

Why? Because it appears that anyone who runs a small business out of their home and uses part of their principal residence expenses to write down that self-employment income, is going to get hit big time.

For example, I know people who run day cares out of their home. I also know of firefighters, police officers, teachers and government workers who run landscaping or other similar businesses in the summer. In fact, I know one firefighter in my community who works for 4 twelve-hour days and then is off for 3 or 4 days (or some combination of work/off schedule like that), and sells real estate on his off days. (This sentence added on January 17th at 11am because of a Tweeted question.)

Read this page on the Revenue Canada Agency website. Go to Item # 8. It reads that:

If only a part of your home qualifies as your principal residence and you used the other part to earn or produce income, you may have to split the selling price and the adjusted cost base between the part you used for your principal residence and the part you used for other purposes (for example, rental or business). You can do this by using square metres or the number of rooms, as long as the split is reasonable. Instructions will be provided in the guide T4037, Capital Gains 2016, on how to report the sale of your principal residence in this situation.” (My highlighting.)

In other words, if you have been conducting and claiming self-employment activities at any time you owned your property, are you going to have to pay some tax when you sell it?

Clarifiction Sat. January 17th, 2017:

I would recommend visitors read all the comments, but particularly this one from a qualified accountant with the sign-in name Frances.  He says the new change means that effective 2016, all Canadians, not only the self-employed, will need to let the CRA know that they sold their principal residence (PR) during that year and how much profit they realized. If that does not qualify as sneaky by the CRA and the Trudeau government, I don’t know what does? What it says to me is the same thing it said to Frances — that at some point in the years ahead, profits made in 2016 might conceivably be hit with a tax adjustment.

127 thoughts on “What does Trudeau’s sneaky “principal residence” tax change mean?

  1. Hit the taxpayer where they live. Sorry won’t be reporting business use like home office, but business outbuildings on site &/or a significant part of the home were always going to be questioned by money hungry revenuers.

    Now they’ve codified their intent. The implications are stunning and within the standard of rising up against bad legislation, against the public good of encouraging home ownership.

    More in the how do you like being lied to, by omission in this case. Say hello to change.

    Should tax preparers recommend dumping the home office/business use deduction going forward?

    Liked by 1 person

    • I’m not so certain on further research and reflection it’s as bad as it sounds.

      I reviewed the CRA bulletin, posted below, and they do refer ominously to the case where “only a part” of the home qualifies for the principal residence exemption (PRE).

      http://www.cra-arc.gc.ca/E/pub/tg/t4037/t4037-16e.pdf

      But my reading is coming around to that if was not possible for you to claim a property as one’s PRE all along, like a duplex with one half rented, then the capital gains rules would apply in those cases. So, no biggie.

      That is the example they use as well. The rented half never qualified for the PRE in the first place; I think and hope that is what is referred to. What about an outbuilding/business on a large property?

      What about suites and rented rooms? What about Tupperware parties?

      Dangerously gray and easy to come up with examples on this. My bet is taxpayers will find it revolting.

      Even though the requirement to report the sale of a PRE only starts for the 2016 tax year, it insidiously acts as a retroactive tax for vendors should CRA decide they don’t qualify for the full PRE, with no grandfathering.

      A lot more clarification is required and I hope taxpayers sniff if out for the money grab it is and need for them to be our expensive big brother. How out of touch must they be to think they can nail the self-employed like this?

      If they try to apply this rule to home-based businesses, like daycares, they will provide the resonant issue for voters to finally rise up against their taxaction overlords, imho, with me for one manning the barricades.

      This political storm would made HDS pale by comparison. Remember Mulroney’s CPP de-indexation ploy?

      If they ever tried this, the unintended consequences would be to drive home based business further underground, with consciences clear they prevented the taxman from taking away their one big tax break, and not bothering to claim the income to boot. As the government tries to “help” us we are forced by our survival to push it away, so more taxpayer revenues are lost. Government shoots itself in the foot all the time, but our wallets feel the pain.

      But again, on reflection, I think home based businesses are OK, but yes let’s be vigilant and thoughtful on this.

      I look forward to others’ thoughts on this matter.

      Liked by 1 person

      • The other issue is how self-employed people use a percentage of the Capital Cost Allowance on their business professional income. I haven’t done that since I had my private psycho-ed practice in my home but it is a huge deduction from earned self-employed income. You start out with a percentage of your home and vehicle and it goes down over many years. But, on average, it involves several thousand dollars a year. See Capital Assets in this Globe link.

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      • I agree Sandy CCA is tricky, especially for home based businesses.

        It’s OK to use CCA to depreciate assets that are not part of the home, like business computers/equipment, but I and many accountants counsel strongly against ever using CCA for the home itself.

        It, like land, actually appreciates in market value, so claiming CCA is a poor idea, even with investment properties.

        For the homeowner, that’s a big mistake and can surely open the door to CRA snooping. Additionally, any capital expenses for the home should not be used as part of the home office/business deduction.

        It’s sometimes a fine line and the classic example in my mind is roof replacement. If the roof is replaced with the same quality & type of roof, then it is normally a current expense. If a better roof is installed, then it is an improvement, and thus a capital expense, which the home based business should not take, given CCA is not to be used.

        A good tax preparer should always consider the individual’s current & future tax implications of tax planning decisions.

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    • The fact I had to read about my home business residence being fed taxed from a blog tells us all we need to know about what is wrong in the governing of this nation. The media was in as complete a sycophantic hush about this as the duplicitous Liberals who spawned it. ,

      More closed door government, more unmandated wealth redistribution, more official dishonesty

      Sighhh, this used to be such a great place to live

      Liked by 2 people

  2. Haven’t heard any reports of questioning Sunny Ways PM as he makes his way through Ontario on the start of his schmooze fest to meet the peasants. Must be a culture shock even for him after being feted by the Aga Khan on his private Island.
    His meeting with Khan may be against the rules but hey, he’s Liberal, made an honest mistake, nothing will come of it. We can all recall the spectacle made of Conservative MP Dean DelMastro, he spent his own money on his campaign, it was against the rules, he was led out of court in hand cuffs and leg irons to serve time in jail.

    Liked by 1 person

  3. Sandy I checked the Schedule and still feel my interpretation is correct, at least for the time being upon further “clarification.”

    The principal residence section allows you to check off that the property was as your PRE for all of your ownership & residence.

    No mention is made of using the home for income except to refer to the bulletin which I had posted, which again doesn’t seem to mean home-based business

    I agree mixed use could be a fly in the ointment, and they are actually out to deprive foreign owners of the PRE, but anyone in clear conscience can check off they maintained their principal residence the whole time the owned if that is the case without further embellishment or details.

    No matter, I agree this something we definitely need to keep an eye on.

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    • I hear you Phil but if you have used a percentage of your principle residence expenses on your return for 2016, like say 12% of what you paid for taxes and utilities, and sold your property in December, 2016, my bet is you will hear from a RCA bureaucrat at some point in time. Schedule 3 asks you to identify the year you bought the property and what you cleared when you sold it — which as D.Shaw says, is really none of their business. Yet, Item # 7 shows that if you don’t tell them, you can be fined $8,000 or $100.00 a month …..

      All that said, I have not noticed an entry on the Business and Professional Income Form T2125 where you put the income you gained from the sale of a principle residence. Yet, I am suspicious because the quote I gave on Item # 8 makes it clear that if you use any part of the expenses on your principle residence to reduce your self-employment income, you will have to pay some tax on the sale of that principle residence. Up to now, our principle residence has been sacrosanct.

      Time will tell I guess. Whatever, this was a sneaky change.

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    • If you like to keep apprised of what may be coming from the entitled elite’s pet projects , you may care to read the updates to Agenda 21 – particularly the section on population and housing density, where they deem it a “waste of urban resources” to house a single person or couple in a large family sized dwelling.. In Europe they have started to act on this through census and tax information and singles and couples living in multi bedroom “family dwellings” are taxed a surcharge for every “unoccupied” bedroom in their home.

      I’m thinking claiming these as part of a business space may off temporary relief from this urban sustainability.madness and it’s maximixed housing density taxes which our UN enamored PM is no doubt pondering.

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  4. Thanks for the heads up. As someone starting my own business this might negatively effect me, although I will be doing most of my work out of the office. If Trudeau was getting rid of all the tax credits and deductions to simplify the tax code and then cut income taxes I might accept this, but it seems his government believes government not the private sector creates growth and thus wants more revenue. He wants to be liked by everyone, the problem is governments who try to please everyone go broke eventually. You sometimes have to say no to people and yes it may anger some progressive voters who voted for him but it is the right thing for the country. Even Martin and Chretien for all their flaws at least were economically literate unlike either of the Trudeaus. I would however support simplifying the tax code as I would love to be able to do my taxes on my own without hiring an accountant and do it in only 30 minutes instead of several hours, but I would also expect if this is done that rates would come down.

    While on a side note, I would propose the following federal rates with very few deductions. First 20,000 tax free, $20,000 to $50,000 at 10%, $50,000 to $100,000 at 20%, and finally over $100,000 at 25% which would mean lower rates for everyone. For lower and middle income earners, this would provide greater stimulus as this would get spent in the economy rather than on some pet project, while for higher income earners it would make Canada a magnet rather than repellant for top talent (top combined provincial + federal rates exceed 50% in 7 out of 10 provinces and are higher than even most Western European countries whereas under my plan no one would pay over 50% and few even 45%). And with Trump cutting taxes don’t be surprised if the brain drain starts again. At least the Chretien/Martin government had the deficit as an excuse and once the deficit was tamed dropped the surtax. And I fully agree that the Liberal government prior to 2006 was better on economic issues. In fact the last PM as fiscally irresponsible as Justin was none other than his father.

    I will be interested in a few weeks if Trudeau’s numbers go down. His claim of helping the middle class is less about helping them and more about punishing the rich somehow thinking the middle class will magically benefit from it which it does not and off the course the rich he goes after are the entrepreneurial ones who create wealth, not trust fund ones like himself.

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    • This makes a lot sense. I am a single mom, raising two kids attending post secondary educations, one university level and the other college level. I am a middle income earner but am now struggling as education comes at a high cost and with no wage increase in 1o years and a loss of benefits, l am slipping into survival mode. More and more of us middle income people are having to incure more debt in order to get by. I would love to see the archaic age of dependents raised from 18 to at least 21. Let’s face it, as long as they are attending a post secomdary education they are dependent on mom and dad. For middle to low income earners this would atleast alllow for some breathing room while they are still pursuing a vocation that will allow for a decent living, we hope, upon graduating. Gone are the days of staring a gainful career right out of high school. That “dependant” line on my tax return will make a deference as to weather I owe the government more money this year or get a small refund, which in the end goes towards my kids education.

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      • Jackie – there’s another sneaky tax change effective 2017: the education and textbook allowance for students is being eliminated. This means all your children will be able to claim on their T1 returns will be the amount of tuition on their T2202A’s (or on a TL11A, TL11B, and TL11C for students at out-of-country universities). For the last few years, including 2016, students at a qualified post-secondary institution would be able to claim, in addition to the eligible tuition fees, $465 per month for a full-time student or $140 per month for a part-time student (months on the T2202 or other form). Since most students don’t make big bucks, this almost invariably meant the student accumulated a nice carry-forward of this credit by graduation. This credit would be used to reduce the amount of tax payable in the year of graduation when the student was now out working. It was a nice bonus in the April after graduation, when the refund arrived.

        With the removal of this tax credit, students will not have a nice credit to apply to the first year of work. If a student has – as often happens – transferred some of the tuition credit (up to $5000) to a parent (usually because said parent is subsidizing the education), there will be very little credit left. So what was once a nice tax refund to a student just heading out into the world is now more money in the pocket of the government.

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  5. I have been communicating with a reader on my contact form and decided to check out the Schedule 3 Capital Gains form. Here is the link for 2015. https://www.cchwebsites.com/content/pdf/tax_forms/ca/en/5000s3_en.pdf Page 2 has nothing about principle residence. Now compare that to the same form for 2016 — on page 2. http://www.cra-arc.gc.ca/E/pbg/tf/5000-s3/5000-s3-16e.pdf. Now, you have to tell RCA when you sell that principle residence.

    Bill Elder is right. Where is the transparency in this “sunny ways” government?

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  6. You should have checked with an actual CPA – CA before posting this. Your comments just show how poorly the Universities prepare teachers to understand economic issues. (Or to be Prime Minister)

    Read 2.58 – 2.60 on http://www.cra-arc.gc.ca/tx/tchncl/ncmtx/fls/s1/f3/s1-f3-c2-eng.html#N10B5A

    Nobody in their right mind would have claimed CCA on their principal residence. If they were that stupid, they deserve to pay more tax.

    These measures are because of the wealthy non residents, according to a prominent Conservative CA I was talking to Thursday.

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    • Dan, your insults show you are obviously a Liberal and/or progressive because that is how conservatives are treated. Disagree, fine. But, ad hominem attacks help no one.

      Average Canadians should not have to talk to an Accountant to understand their taxes. I have a Ph.D in my field. I am not an accountant but I am not stupid as you suggest. Here is a screenshot of what is new this year.

      principle-residence

      I will repeat the first line of the section “Sales of Principle Residence.” The sale of a principal residence must now be reported, along with any principal residence designation, on Schedule 3. Then, you must go to Question 7. In other words, if you identify that you have sold your principle residence, you can be exempt of taxes. But, the problem is what I have discussed in this post — Question 8. If you have used your principle residence to make income, at any time…..

      So, rather than ridicule and condemn, a discussion to clarify would be more helpful. What you wrote clarifies nothing. There is no indication in anything written on the CRA site that this new rule is for wealthy non residents. It may be. But, the problem is how the rule will affect ordinary self-employed Canadians — which is what I am trying to address.

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      • I am a tax accountant and I teach tax. technically we have always had to report the sale of a principal Residence but it was never enforced. Unfortunately there has been some significant abuse related to the PRE so now the CRA is making it clear that they will now require that everyone must file the form when selling their PRE.
        It has also always been the case that if you choose to claim capital cost allowance on your Principal residence as part of business expenses, you were always putting some of your PRE at risk. In simple terms, this means that if you claim 10% of your home cost ( through cca) to reduce your business income, 10% of the profits in the sale of your PRE would be taxable. Again it was never enforced. CRA is putting everyone on notice hat they will now begin to enforce the tax law.

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      • Nat – One of my commenters (Josee) called the CRA this week and was told 30% was the key deduction affecting sale of PR. At least that is my understanding.

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  7. Okay, I have it from a CA. See my update. The problem is that self-employed individuals will now have to list their principle residence if they claim the CCA, Capital Cost Allowance. When they sell their property, they will get hit with Capital Gains per the percentage they used to reduce their tax.

    But, he did admit that is is primarily for 2017 which is strange that it is in the 2016 information on CRA.

    Clearly, this change is going to confuse a lot of self-employed Canadians. I hope this discussion will help clarify things to some extent. If anyone else has insights, please leave a comment here as well.

    So, to all those who are self-employed, be careful what residence expenses you claim to reduce your income.

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  8. Notwithstanding Dan’s bellicose comments, I agree Sandy one shouldn’t have to hire an accountant to interpret a CRA Information Bulletin which is presumably for the public.

    Nor should Dan be so sure this is only aimed at non residents, without some other ulterior motive from our taxaction overlords.

    WRT Q7 on Schedule 3. It states this does not apply to a principal residence. Q8 refers to limited personal property (LPP), that appreciates in value, such as stamps, jewelry or art. CCA cannot be used for LPPs.

    The point here is in the case of a sold principal resident, the taxpayer is to skip over that and proceed to that section, which itself refers to form T2091, the actual designation of a principal residence. Again, no mention of business use.

    IMHO, no changes for Oct/16 onward except for non-residents. Still a tax grab to be sure, and perhaps a back door for big tax brother to learn more about our finances and calculate their need for more of our money.

    We are right not to trust this bunch, to wonder if CRA might decide to slip between the cracks. Example after example dances in my head of their imaginative “interpretations.” I will most certainly be bringing this matter to the attention of my tax clients who have right to know CRA is sniffing around their homes.

    This is an opportunity to remind governments and bureaucrats not to break trust with us, lest we consider it a breach, and don’t mess with the PRE, or commit political suicide. Boomers would not be amused at being it where they live.

    Having said all that, the home office deduction is costing CRA plenty as many Canadians explore the delights of self-employment. My advice is do not claim CCA on any building you own, principal residence or otherwise, but for the time being continue to deduct for office/business space. In some cases perhaps even forgo it.

    If the Grits overplay this one there would be a massive wave of discontent to mobilize. My view is the government will be much more subtle in milking us, with more stealth than a cancelled CF35.

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    • I’ve run my incorporated business out of my principle residence(s) for 30 years. The only things you can claim doing so are “workplace in the home” expenses, of which heat, light, water & maintenance apply, pro-rated for the “office area” used. Insurance & property taxes can only be claimed by commission employees & there is no provision to claim capital costs on that portion of your home set aside for “business use”, nor is there a need to. If you used a portion of your PR (& set aside access from the home), plus paid rent to the home owner, then you might have an issue, but I haven’t seen anyone I’ve known in business do things that way. They usually find a bay in an industrial setting to run their business separately, with public access, or an office separately because the kind of business dictated that scenario. Doing so on the home front is just too much jiggery pokery & paperwork. Then you’re into business licenses, parking in residential areas, signage, insurance issues. It’s endless headaches.

      On form T2200 Declarations of Conditions of Employment, there are provisions to state that the employee was (in my business I was the employee, too, there were no others) required to use a portion of their home for business purposes with amounts paid or not paid to do so (Y/N) et al. This form also lays out their employment conditions for working away from home, vehicle expenses, tools, trades blah. blah. blah. The thing being that if the Corp didn’t reimburse the employee for these expenses, then the employee could (reasonably) claim them against their income. No provision on this form for PR costs such as CCA on the PR, but there were for tools & equipment used in their trade or work.

      I can’t see CRA under any government decide to do away with the PRE & suddenly businesses of any kind using office in the home being subjected to retroactive CG charges without a hell of a tax fight, where folks being whacked this way would not be able to claim CCA on that portion of the home, previously not claimed against it, & among other things not previously accounted for to “run” this business. Insurance & property taxes come to mind. The biggest howlers against it would be Accountants & Lawyers just for starters. .Gov does not want to p these guys/gals off.

      I put this right up there with the efforts of one BC .gov in the past (NDP) thinking about charging CG taxes on unrealized capital gains on PR (based on increased assessment values) w/o the property having been sold. Shot down in the dust before it even got off the ground.

      I can’t envision a .gov contemplating doing this without explaining to the .gov that the “home” didn’t earn the income for the business, the nature of the enterprise did, not the address, so how can you tax the property for income earned by the business, as .gov has already done that in previously filed years? The “business property” would be entered as a cost of the business & unless the home owner received some kind of benefit from the business through a change of use, or partial CoU, no tax liability should be accrued on the sale of said property.

      Reading through on Schedule 3, I see this as an attempt to weed out PR flippers of the Vancouver/Toronto form & nail them down to at least one property in a year. I also see it as some “new” requirement of one property PR owners who don’t subscribe to the above, now having to disclose to .gov they sold their PR for xxx dollars above the purchase price (less any improvements or related costs) & then disclose what portion was owned by the spouse. Huh? If both are on the Title, then it’s 50/50 folks, why even have any other designation, unless it was a “business” property?

      Form T2091 then goes on to separate out properties designated as PR before & after 1981 & 1982 (if one has done so), when the Act states that unless CRA believes an offence has occurred, they can only go back 7 years on Income Taxes. OOPS! Reading “whats New for 2016” the CRA have waived any restrictions on that statute if one doesn’t file the PR bumpf. How convenient. Personally, I am not filling out this form for .gov when I sell. It’s none of their business. I don’t see CRA ads on TV informing folks of these changes right up front, so they don’t do the “gotcha” thing. The whole thing is done to “gotcha” & then be able to re-assess back more than 7 years with impunity. Fishing expeditions, which are illegal under the Act.

      Sadly, the Minister Mme. Diane Lebouthillier, Minister of National Revenue has a BA in Social Work, none in taxation, or anything related (I checked), so I suspect that the minions in CRA are acting w/o supervision on this (on their own, or under someone else’s guidance, because it sure isn’t hers), in response to property flippers running circles around them on PR, or anyone other than themselves doing well on their choice of PR & it’s future non taxable sale.

      But then “budgets balance themselves” & we’ll run deficits to 2050, so the .gov folks need some leverage on paying for their own profligacy (read pensions), down the road. Your PR is probably already spoken for & .gov just needs to boot you & then move right in, by waiving what you owed them. Maybe. Probably stick you with the moving bill on top.

      jt.

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    • Big difference between “office in home” and business in home. Have to claim capital gains for business in home but nothing changes for office in home. One was always supposed to claim Capital Gain on the portion of the residence used for business but CRA has never dealt with it. So all those with secondary suites it may not be so lucrative now that you should be paying capital gains on the portion of your personal residence used as rental property.

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      • Hi Pat – One was not always suppose to claim Capital Gain on the portion of the residence used for business. The following section “Changing part of your principal residence to a rental or business property” of Guide T4037 is very clear:

        “You are usually considered to have changed the use of part of your principal residence when you start to use that part for rental or business purposes. However, you are not considered to have changed its use if:

        a) your rental or business use of the property is relatively small (CRA defines this as 30-40%) in relation to its use as your principal residence;
        b) you do not make any structural changes to the property to make it more suitable for rental or business purposes; and
        c) you do not deduct any CCA on the part you are using for rental or business purposes”

        YOU MUST MEET ALL THREE CONDITIONS TO BE CAPITAL GAIN EXEMPT when you sell your PR.

        As for individuals who claim “Work-Space in the Home Expenses” (which is completely different than “Business-Use-of-Home Expenses”) via their T2200, they are not affected by this at all as they are not conducting a business in their home – these are considered Employment Expenses and as such, does not affect the status of their principal residence at all.

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  9. Sandy, if you use part of your principal residence for business AND you claim capital cost allowance, you might end up paying some capital gains tax when you sell that residence, and this has been the case for many years. You can, however, claim reasonable expenses incurred to earn self-employment income, including property tax, heating, electricity, cleaning expenses, etc., without reducing your principal residence exemtion (PRE). What has changed is the requirement to report the sale of your residence even if no capital gains apply, i.e., your PRE fully offsets the gain. The tax code is large and complicated–perhaps too complicated, but, to be fair, was so under conservative governments as well as Liberal ones. It is misleading to imply this new REPORTING requirement adds to the amount of tax we have been obliged to pay in past years. (BTW I am a CPA.)

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    • Thanks Russ. As I said to Phil, it is great to have such qualified readers that can help solve what could be a problem for some self-employed Canadians. The issue I bring up is definitely something new as it is in the “What’s New for 2016” — although as you say the Capital Gains and CCA issue has been around a long time. Years ago, before I retired, when I was running a part-time private psycho-educational practice out of my home (separate entrance, etc), I had to deal with this. Nevertheless, the fact that now having to use the Schedule 3 (Page 2) to register the principal resident is interesting.

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    • Oh and one more thing, I do not believe I misled anyone. I certainly didn’t say that anything adds to the amount of tax we have been obliged to pay in past years. I was just saying what the bulletin said — namely, that if you claimed certain deductions in past years based on the square footage used for business, you might have to pay tax on that footage or percentage once you sold your principal property. I was audited once on a related issue that is a fact.

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  10. Actually, it doesn’t matter if one has a home business or rents out the basement, ALL principal residence sales in 2016 have to be reported on the seller’s T1. And good luck finding out the original purchase price (or figuring out the ACB if there’s been a significant reno in the meantime).

    As it stands, the CRA rules are that – provided one uses less than 50% of the home for income-producing activities (I always use 40% for a basement rental – the furnace room and laundry are not totally rental) AND provided one takes no CCA on the property to minimize the income from said income-producing activities, the principal residence designation is not affected. However, have a nasty feeling that the government – desperate to feed their spending habits – will change this. Given the number of Canadians who are forced by circumstances to either work from home (self-employed or employees) or rent out part of their homes in order to afford same, this will be a very nasty change. We all have to be vigilant to stop this.

    And, BTW, do NOT depend on your friendly local CRA agent for good advice. Back in the day, had a client with a basement suite who had built a garage on his property. Phoned CRA to see if could expense same, and was told to just take amortization (CCA) on the part of the garage being rented out. Which he did. Needless to say, the first thing I did was to prepare an adjustment for the year in question, reversing the CCA taken and adding – as a comment – that was on the advice from an agent from CRA. Said client was going to sell and move so never heard the result; hope all was well.

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    • I believe you are wrong about claiming the home based business and the basement suite rules. Regardless of the percentage used the part used for business purposes is subject to capital gains and not considered part of the principal residence. Office in home is considered part of principal residence and makes sense as renting out a room in your home does not change the designation.

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      • Pat, I appreciate you leaving a comment but please don’t say anyone is wrong. Almost everyone commenting here are tax professionals. Therefore, there will always differences of opinion.

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      • Hello, Pat

        Went to several places on the CRA website also contacted the Knowledge Bureau about this aspect. Have done taxes for many years, and have never taken CCA on an office in home or a basement rental for a client. Despite the ambiguities in the CRA webpage cited by Sandy, the rules still stand. Business/rental use of a home does NOT invalidate the principal residence excemption so long as three rules are observed:
        1) Business/rental use of the property is ancillary to the use of the property as one’s residence (and this has been interpreted by CRA as being that no more than 40% of the property is rented).
        2) No structural alterations are made to the property to convert it to a rental or business use (as in you can’t build a basement suite just for a rental).
        3) No CCA is claimed on the business/rental portion.
        Needless to say, income derived from said business/rental use is to be reported on a T1.

        The Knowledge Bureau Report of January 18 has an excellent discussion of the principal residence deduction with respect to coach houses on the property.

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  11. Pingback: Sneaky Politics « Jack's Newswatch

  12. To my mind, what is interesting about all the comments from tax professionals is they all tell the self-employed to be cautious because there could be more to this change than first thought. The other issue is the differences of opinions by those same professionals on what it could all mean. What seems clear, however, is that the self-employed who use part of their PR should never claim the CCA –Capital Cost Allowance — because doing so could come back to bite them with capital gains when they sell.

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  13. Frances, your idea of making yourself an employee (assuming you’re a sole proprietor?) is clever but must point out if you’re a homeowner, you cannot claim interest expense, property taxes or home insurance as an employee, rather than self-employed.

    I agree don’t call CRA, but do read their online material if so inclined. If not, drill down into trusted sources &/or consider a pro for this and that.

    A point was made here by another that the PR is not the business, it’s your home. It’s your efforts and output of your equipment that determine your profit, on which tax is duly paid. If you’re incorporated, same deal on disposition and reporting of income, most likely as an employee.

    OK so far so good. What about a separate structure/office built on site years ago? What will CRA think of that given their new information? What about a secondary suite in a house? Will CRA decide the measuring tape has to come out?

    I’m honestly not trying to ramp concern, but these are reasonable questions in the wake of this new reporting requirement.

    I expect the government to clarify these legitimate concerns with a simple assurance no such “interpretations” shall be undertaken, that the PRE is sacrosanct, and any thought of changing comes with the assurance of full public debate and no retroactive application of tax.

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    • It looks like this change, which we don’t really understand fully yet, was done without even a regulation. CRA simply added it to Schedule 3 on Capital Gains. Business use of the PR has been around as long as I can remember. However, as other have said here, that may be the problem in that lots of people are using part-time self-employment to pay less tax.

      I have a close friend who is a mortgage consultant and she says sometimes self-employed people pay no taxes at all, finding a way to use use of the PR expenses to do that. Which ends up hurting them when they want to borrow money on that very same PR.

      Whatever. Having to let the gov’t know when you took possession and sold your PR is a rule change that just sneakily happened IMO.

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      • I dispute that comment “…that may be the problem in that lots of people are using part-time self-employment to pay less tax.” I do so with tongue in cheek. It isn’t against the law to avoid paying taxes. It is against the law to evade taxes. If one reads through the “tests” to determine if you are sef-employed & avail oneself of all those deductions, you best have more than 6 clients, or just incorporate.

        If self-employment is available to you & you can run that “business” (incorporated or sole proprietorship) out of your home, most times the tax savings are quite small on “office in the home” expenses. It isn’t why you went into business in the first place. I’ve deducted one small room as “office” & a closet for storage in the calculation, a total of 125 sq feet. That’s 9.2% of main floor space. The bsmt is undeveloped so I don’t include it in the calculation. That office in the home deduction for the last 18 years at this address has amounted to about $225 a year against my personal income. I donate more to charity annually. If one had a bigger use of the PR for business, one would most likely rent office space separately.

        I’d like to reiterate the fact that I made before, that charging CG against a percentage of the PR used for business on it’s sale, & back dating it as it appears, is a bad idea. The business location in the PR did not create value in the house, or the business over the years, so why is the PR taxed in the owner’s hands for business use? The owner is only deducting a portion of the operating costs for business use. There is no capital involved in this calculation. If the business did not own the property, or the part of it being used as business, pay rent for it, charge CCA, costs associated with office space for business use would have been accounted for under T2200. If that isn’t the case, then this unofficial regulatory imposition is just efforts by CRA, without Ministerial oversight, to “gotcha” re-assess beyond the 7 year limit, grab taxes & wreak financial havoc & emotional damage of generally compliant tax filers. It will go to court most likely & be aired out. Someone will take CRA to tax court over it (because their address changed between 2015 & 2016 & didn’t file T2091) & this bit of bureaucrat instituted “tax policy” change will be terminated.

        On another angle, if the CRA insists on doing this going forward, then we may as well go full American & push to deduct our mortgage interest costs against income as “investment expenses” on our “investment” into a real estate property, for our own use. Back date it, too! Then charge CG to their heart’s content. Given some of the average costs of real estate in certain parts of Canada, people would mortgage themselves to the hilt & .gov would be out a pile of dough annually on interest costs alone!

        jt

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  14. BZ (soldier talk for congrats) to you on the NW Canada and Jack’s NW pingbacks. You’re right to bring these legitimate concerns into the public domain, to nip in the bud any idea that may exist about tampering with the PRE.

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  15. I was wondering if the best thing for all this would be to just simplify the tax code overall. Yes it would mean a lot fewer deductions, but also this would hopefully be offset by cutting taxes (Trudeau won’t do this, but the next Tory PM definitely could) as this would lead to less confusion never mind I wonder how many people decide not to start their own business because the regulations are just too complicated. If you are not someone who is mathematically minded this can be a challenge and many with great ideas who could run a successful business are not mathematically minded. The only real losers in simplifying the tax code are the tax accountants which we would need a lot less of, but everyone else would benefit. The other solution is just lower the overall tax burden so people feel less need to use these. When Ronald Reagan came office in 1981, the top marginal rate was 70%, but when he left in 1989 it was 28% yet the government did not lose revenue as most people felt 28% was a reasonable rate so they didn’t try to look for every deduction possible whereas at 70% most felt that was unfair and did everything to avoid paying that rate.

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    • Maybe some of the CPC leadership candidates can work on that slant.

      By the way, for all those who visit here and live in Ontario, I did my taxes in rough yesterday. When Mike Harris was in gov’t, the ON share of taxes paid was down to 34% of the federal amount. During Bob Rae time, the ON share was 58% of federal. Now, it is more than the federal amount. Can you believe that? And, on top of that huge difference, the last thing you have to add on is the Health Care Premium which makes your ON tax approx 125% more than federal.

      Hear that ONPC Leader Patrick Brown and do something about it — please!!!

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      • I hope so to. I also find the whole surtax problematic and think it should be done away with. It’s basically a sneaky way to make Ontario tax rates look quite competitive since without it we would have one of the lowest in Canada, but when tacked on, there are one of the highest. My suggestion provincially would be 5% for lower income bracket, 10% for middle, and 15% for top. That would mean a combined tax rate of 20% at the bottom while 48% at the top, which is quite high but at least that would put us around the middle of the G7 (lower than France and Japan, around the same as Germany and Italy, while slightly higher than the US and UK) and below the 50% mark which is a psychological threshold that when crossed can be quite damaging (unlike Trudeau, even Mulcair understood this). Now I believe the rates should be lower, but the provincial government can only cut so far, the federal government has to do their part (If you see my post above the combined rates would be 15% at the lowest, 30% middle, and 40% at the top so below the OECD average). In particular rising health care costs due to an aging population probably is the biggest impediment to further cuts. If I am not mistaken, I believe Harris ring fenced health care as being off limits to cuts while other areas were fair game so probably best for Brown to take this approach.

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  16. What a weirdly partisan way to discuss tax policy. It’s probably the first ever click bait discussion of CCA! And frankly the advice given here is both alarmist and not accurate, consult an accountant. As some commenters said it is not a good idea to claim CCA on portions of your primary residence used as for a home business – this is not new advice. CCA is something you may not want to claim on even a rental property, it depends on the situation. Let’s not forget what CCA is. It’s a way to account for depreciation of assets, and the reality is for 20 years most real estate appreciated not depreciated.

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    • Sorry David, given the title of this post, it is definitely partisan. But, you fail to mention the reason for the post. CCA is just a sub-topic. The real topic, which you ignored, are the “changes to our taxes in 2016.” And, since JT is currently the PM and is Liberal, he is being blamed. Just as PM Harper was blamed for everything the bureaucracy did when he was PM — and more. That change is that Canadians are now supposed to register their principle residence and report when they purchased it and what their profit was if they sold it in 2016. Given how Liberals spend money they don’t have, all of us are suspicious. And, rightly so. I called it sneaky, which it is because there have been no ads on TV telling us about this major change.

      The other issue is that many of the commenters here are accountants and it was a CA that explained to me in my “Update” about the dangers of claiming CCA.

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      • What an interesting comment you made in a paragraph above. I’m not on topic, I know, but this rings a warning bell, never the less.
        “…Given how Liberals spend money they don’t have, all of us are suspicious. And, rightly so…” reminds me very well indeed of another well publicized comment made way back in the 70’s ( I think it was).
        Margaret Thatcher, once famously said of the Labour government, after the disastrous ‘winter of discontent’, in which the UK economy was wrecked, and the Labour party threatened higher taxation for all;
        “Socialism doesn’t work, because you soon run out of other people’s money”.
        As true today as it was back then. Let’s hope Canadians can avoid a similar fate.

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  17. I asked my Dad about this as he has been an accountant for many years and this is what he had to say; “It is true that if you operate a business out of part of your home and claim capital cost allowance (depreciation) on that part then a similar part of the property could be subject to tax on the eventual capital gain and this provision has not changed. The change that was made for 2016 is that if you sell a residence and are claiming the capital gains exemption on that property you are required to report that sale on the 2016 income tax return. Previously if you sold a property that was your principle residence and you claimed the principle residence exemption there was no requirement to report that on the income tax return. Therefore CRA had no record of the fact that you had used your principle residence exemption. As a result if, in a later year, you sold another property such as a cottage or a condo which might also qualify as a principle residence, CRA had no record of the fact that you had already used the principle residence exemption when you sold the first property and you can only have one principle residence at a time. This would mean that if both properties were owned at the same time the sale of the second property would be subject to tax on the gain.”

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  18. Readers may be interested in the juxtaposition of my latest post compared to this one. In my today’s post, we learn that a CRA employee billed the government (taxpayers) for $538,549.00 to move from Richmond Hill to Belleville.

    So, it is entirely possible that CRA employee may be one of the employees that makes sure the self-employed in and around Belleville pays taxes on profits earned from selling their principal residence in 2016. While he or she took home a half a million dollars for doing the same and moving two hours down the road to a new office.

    Where is the fairness in that? Sucks big time!

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  19. Sandy – EVERYONE who has sold his/her principal residence during 2016 HAS to report it on Schedule 3 of the T1. Self-employment has nothing to do with this reporting requirement. My concern is that, if there is at all a “commercial” use of the property, however, small, CRA will use it to remove some of the principal residence exemption, even though CRA rules show how one can claim for office-in-home for the self-employed or employees who are required to work for home. Similarly, for rentals (typically a basement rental), which is increasingly being used by seniors so they can stay in their homes or by first-time buyers so they can afford the home in the first place; so long as CCA is NOT taken and the amount rented out is less than 50% (I would use no more than 40% for a basement rental), there should be no consequences to the principal residence designation under the current rules. But I’m willing to bet that government is looking at ways to change that, perhaps retroactively.

    Meantime, you know anyone who sold their home in 2016, tell them to get all the information in order.

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    • Wow. Thanks for those insights. It shows how many interpretations there can be. I’ll add a further update later. (Update added to post Tuesday, January 17th at 10:30am)

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    • However, this is not actually what the principal residence info on schedule 3 is for. It is for going after foreign investors, primarily, that are causing places like Vancouver and Toronto to be so expensive. It also to go after people that cheat the system – serial builders. Build a house and sell it at the one year mark, only to move into the next new build and sell it at the one year mark etc.

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  20. How about this? French debate is tonight and Kevin O’Leary is apparently going to enter the leadership race tomorrow! Any thoughts folks?

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    • Pathetic. He is an embarrassment. Not like Trump that is for sure because he is all about him. Besides, he trashed the military saying not warriors. Both my grandfather & father fought for our country.

      Liked by 1 person

      • Have to say I don’t like the way the whole leadership race is shaping up. O’Leary is no Trump and we can be sure that comparison will be made. He also doesn’t believe in fighting for the country an insult to all our ancestors who fought and died for the very privileges he enjoys today. I too had a close relatives who served in both Wars, one was gassed at Vimy.

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      • I think his main problem is he is too bombastic and that style might work south of the border, but it would be a huge turnoff here. He would just worsen the reputation the Tories are a nasty party rather than combat it. I agree with him on many issues, but choosing him would be suicidal IMHO. Trump at least won as he promised to bring back jobs to the USA and I’ve found people vote more on will this person make things better for my life or not and less on ideology and so many in the Rust Belt voted for Trump hoping he would bring back jobs. What does Kevin O’Leary have to offer that others haven’t already. Never mind he doesn’t speak French which for good or ill a candidate should at least be passably bilingual. I also highly doubt he will win and this seems to be more attention grab, maybe to help his business. Finally he is an opportunist as he even said he would run for Liberal leadership race if there was an opening and that is not something we need. Someone can be a former Liberal from many years ago like Harper was (He was a Liberal from 1977 to 1981 but switched since) whose views who have evolved, but anyone wishing to run for the leadership should be loyal to the party and have a level of commitment to it, not a blatant opportunist like O’Leary

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      • What I am going to do is put up a thread in a few minutes so that regular readers can comment about the CPC Leadership race or any other topic they want to. In that way, this thread can just be about taxes.

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    • He is a bad choice because if he gets in all work that can be shipped overseas will be sent there.
      just pay attention to his dragons den and all the “why dotn you make more profit and have it made in china.”

      yea he will be the ruin for sure of any and all manufacture jobs in Canada.

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  21. Trudeau visiting in Fredericton on his celebrity tour had the gall to say his government inherited a “high degree of mistrust” from the previous Conservative government! IMO this tour is more like a Liberal campaign tour, a lot of Liberal operatives involved, especially in his Halifax stop…very friendly territory to get a larger crowd. Questions being asked are not what you’d expect for a PM, some are concerning local or provincial issues.

    Conservatives need to get their act together.

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    • For some reason which I am not sure why, it seems Atlantic Canada is having a love affair with the Liberals so I am not surprised. In Ontario the reception was much frostier so yes more Conservatives should come out, but I also think location too was part of it. Hopefully he comes to Alberta as well as I suspect he will get a lot of hard questions there.

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  22. Trudeau answered all questions in French at a Sherbrooke “town hall”, even those that were asked in English saying they were in a French province so he would answer only in French. Not sure what he’s playing at, arrogance for sure.This is the sort of thing that could backfire in the rest of Canada, especially in the West.
    Would his handlers be getting a shot in at O’Leary before he’s even out of the gate?

    Going to be a long haul to May 27th leadership vote, too long the way things are going we have the makings of a gong show.

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  23. Now Trudeau says “he maybe could have answered partly in English and partly in French and that, on reflection, it would have been a good thing to do.”

    http://www.cbc.ca/news/canada/montreal/justin-trudeau-sherbrooke-french-quebec-town-hall-1.3940629

    IOW he realized he would be trapped in a town hall outside Quebec where somebody would test his approach with a french question.

    More “reflections:”

    Voters could reflect on how they were misled or outright lied to by Trudeau and his Grit compatriots about deficits, recessions, Senate scandals and HDS, which they and the CBC gleefully promoted.

    Voters could reflect how statists must always blame others for the economic failure of their pseudo-ideology, such as we are witnessing in the US where Dems and other statists can’t believe they were actually rejected, instead they play the blame game of conspiracies, like the Russians, or the FBI or faked fake news.

    Voters could reflect how “modest deficits” have turned out to be permanent deficits over $30b/year as Harper and many pointed out during the last federal election; and turned out to be right, including Grits losing control of the treasury from day one (except to benefit themselves, their cronies and rent seekers), the imposition of a federal carbon tax, and now the feds sniffing around our PRs.

    Voters should reflect that accountants are not politicians, that they can speak only to what they see so far, which is no evidence this PR reporting system will bite taxpayers later or end up being a retroactive tax increase.

    They could further reflect that CRA has been known to make imaginative “interpretations” of the Tax Act and one could drive a fiscal truck through the grey area created by this “administrative change” and its implications for secondary suites and other businesses run from taxpayers’ PR’s.

    Voters could reflect that by electing these tax, spend and borrow champagne socialists, we again have a government that will spend every cent they receive, troll for much more and still borrow massive sums of money for a taxation double whammy. First, taxpayers will be increasingly hit by CRA “interpretations” (there are many like interest carrying charges, TFSAs already attacked, capital gains exemptions, and now PRs under increased scrutiny to name but a few), actual tax increases (carbon, income taxes everyone pays, not just the “rich”), followed by more tax increases due to increasing debt service charges and drunken sailor government spending binges.

    Trudeau says there’s “mistrust” of government, which he blames on Harper, who by all accounts tried to limit government, and got us more quickly out of deficit than any PM in memory. Statists always mirror their failures on their opponents, and are good at blaming others because to do otherwise would be to admit statism, aka therapy for liberals, always fails because it vilifies, taxes and ultimately destroys the productive sectors of economies.

    Neo SJW emotional reactions will not change that, nor will they protest the loss of freedom and increase in authoritarian government that inevitably results.

    Look at the don’t blame me fest going on south of the border. Obama never stopped blaming GWB for the Dems’ and his failures, cooking up lowered unemployment, when the fact is workers giving up on trying to find a job became excluded from the unemployment rolls, thus ignoring 95million Americans out of the work force, the lowest rate of home ownership in 50 years, despite low interest rates, record numbers of blacks on food stamps (indeed about half the adults now dependent to some degree on government, and stagnant wage growth during the Obama era.

    Harper failed to do what Trump did – isolate and expose the media for the incompetent & unethical partisans they are, and message around them. Instead Harper (did he just run out of steam from the constant and deranged non fact personal attacks?) let Trudeau get away with his fiscal mendacity and off the dinner napkin programs and promises.

    He should have attacked the media each and every time they showed their biases, for instance the kid gloves treatment Peter Mansbridge gave Trudeau while attacking Harper for his entire interview, especially on Duffy while ignoring Grit Senator Max Harb, who may yet end up in jail, whose trial was switched for Duffy’s, perfectly timed for the election campaign. The statist bias resides at every level of Canadian life, apparently including our judiciary.

    He seemed to think voters would figure this out for themselves; what a fatal error! He failed to consider how many times ON voters had re-elected the incompetent and statist addled McGuinty and Wynne regimes. We all let the media get away with their nonsense, but Harper could have done more than anyone to stop it.

    WRT the newest CPC leadership hopeful, I don’t think O’Leary has the required acumen to convince the people of the need for change back to limited government, who seem to be willing to suffer much more taxaction pain before dumping the statists again. He has demonstrated he doesn’t understand that warriors do peacekeeping, that one shouldn’t sell Senate seats and, like it or not, a unilingual party leader is unelectable as PM in ON and QC and likely the Atlantic provinces.

    Who can stop this fiscal madness of statism, which causes more pain and misery than any limited government type could even dream of, and then prescribes the cause of the economic malaise as the cure – doubled down statism, which its attendant loss of prosperity and freedom, that crushing productivity will ever benefit citizens?

    One can be completely equal or free, but cannot be both at the same time.

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    • O’Leary is already getting attention among Conservatives I know, he will have nothing to do with a carbon tax and that strikes a chord with a majority in this province and this country. People are hurting, it’s getting tougher and tougher to make ends meet, it’s the bread and butter issues that will win the day, not the social issues that Conservatives get caught up in and get slayed by the media. O’Leary will not get caught up in that, he will handle the media and they know it.

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  24. Speaking of town halls, I do hope to attend one if I have time in my busy schedule (although unfortunately probably won’t work out). I think the best idea is ask Trudeau a very tough question and on a topic most aren’t thinking about. I was thinking something along the line of dropping OAS age back 65, raising the top marginal rate to 33% which pushes the combined top rate over 50% in the majority of provinces and makes us less competitive, sending peacekeeping troops to Africa just to get a seat on the UN security council. There are many others, but those are a few I was thinking of as I actually over a decade ago did get to ask Trudeau a tough question and he wasn’t able to give a straight answer. Otherwise you ask him something he hasn’t prepared a scripted response for, it will likely trip him up. Also research the facts as Trudeau promised to be an evidence based prime-minister yet has done a number of things such as shown above which are not evidence based so throw at facts to show he is wrong. Just be prepared to get some nasty e-mails or facebook comments from some of his fawners. The women in Ontario who asked a tough question on her high hydro bills has been harassed by Trudeau supporters, but I am okay with that as I believe all politicians should be held accountable. Having a famous last name, being good looking, and taking lots of selfies doesn’t exempt one from this.

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    • I am certainly not okay with the woman being harrassed. Trudeau sure but not the poor woman. I don’t think that is what you meant. Anyway, let’s continue this discussion under my new post.

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      • Neither am I, just pointing out it seems some Trudeau supporters cannot stomach any criticism of their hero. Will continue this in the other post.

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  25. Sandy – attended a tax seminar yesterday, and the comment was made that, under certain conditions, use of part of the principal residence either as a home office or as a rental, does NOT disqualify the whole house for being the principal residence. The conditions were 1) that such use was ancillary to the use of the home as a principal residence (and the figure of 40% non-residential use was mentioned as the maximum); 2) no CCA is ever taken on the home (or the part used for business/rental); and 3) no structural alterations were made specifically to change the use (ie., building a basement suite for rental or even just putting in an outside entrance to said suite specifically for rental purposes). This comes from Income Tax Folio S1-F3-C2, Principal residence, Chapter 2 Sections 2.57 – 2.60 Partial changes in use.

    I agree the section you quoted looks alarming. Also, there are misleading sections in other CRA publications, as in the T4002 Business and Professional Income which talks about CCA being allowed on the office-in-home, with only a passing mention of the consequences of same. So, while all looks okay at this point, you are right to be wary.

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    • It’s obvious there are different interpretations. The “what’s new in 2016” is quite clear. It is now up to the CRA to add a clearer meaning if they don’t want all taxpayers who sold their PR this year to complete page 2 of Shedule 3. Time will tell.

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  26. If there is potential for a capital gain then there would be the potential for a capital loss. In some circumstances such as certain parts of Alberta , there may be a tax deduction opportunity

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  27. An article in the Globe and Mail (October 2016) explained that this change addresses a very complex system where people were able to “inadvertently” avoid paying Capital Gains Tax. If you do some investigating, I think you will see that by reporting sales of residences on our Income Tax Form, loop holes will be closed that previously allowed owners of more than one property to avoid Capital Gains. The original intent of this bill was to address Foreign ownership.

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      • Read that article, and think the author was rather generous when he said people were “inadvertently” not reporting capital gains when a property was sold that didn’t qualify for the principal residence exemption. The issue of having two properties which could qualify for this exemption (but only one at a time) has been around since 1982, and there have been books written on the issue of cottages vs town homes. At the very least, I think William should have known enough to check with a tax professional (and NOT someone on the phone at CRA) to confirm what he thought.

        The larger issue, though, is that the new rules state that a non-resident of Canada CANNOT designate a house as a principal residence. This is to catch the non-residents who were – particularly in Vancouver and Toronto – flipping homes and using the principal residence designation to avoid paying tax to Canada.

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  28. So before everyone starts to freak out…..this was always the case. The only change to the Principal Residence exemption was that the election to designate the property your principal residence now MUST be filed rather than the previous CRA policy that if no form was filed, it was an automatic designation. Nothing has changed other than the CRA (not Trudeau) changing their policy on how the form must be filed.

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  29. The new Liberal government also made a change in that you used to be able to switch fund types as long as it was with the same company, but now if you want to switch, you must sell and pay a capital gains tax first before switching. Your investment freedom of choice has just been removed. To me this is a violation of my freedom of choice and no person has protested this to my knowledge.

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    • Hi, Stan

      There is a class of mutual funds known as the “Corporate class funds” where – when an investor switched from one fund to another – it was not considered a disposition for tax purposes, This is unlike the rules for regular mutual funds where, when one switches from one fund to another within a portfolio, there is a deemed disposition (as in the owner doesn’t actually receive a cheque for cashing out the old fund because there is an immediate re-investment). Presumably this was reported on a T3 or other form – I really hope so as there was no other way for a tax preparer to track said transfers of funds.

      The deal was that owners of the “corporate class funds” could freely transfer amongst funds without having any tax consequences until the final disposition. The new rules make these funds equal to basic mutual funds.

      Look for more nasties coming down the pipe: this government spends like a drunken sailor (apologies to sailors) and will stop at nothing to fill the coffers. They’ve already taken away deductions for children’s arts and sports programs (which -in my experience – were used by lower income families as well as the “rich” which the Liberals said were the main beneficiaries). They’ve taken away the “education and textbook” amounts for students, the accumulation of which usually gave grads a good tax break in the year they finished studies and went out into the real world. Next will be the principal residence exemption – watch for gradual erosion on that one.

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  30. Good Afternoon,
    I’ve been following this thread with interest (save the political rhetoric). I have been preparing tax returns since 1992 and have always cautioned my clients as to the ratio used to calculate office in home expenses on the T2125. Never would I recommend using depreciation (especially in Ontario!).
    When reviewing CRA’s site today, below is what I have found pertaining to this concern:
    ” Changing part of your principal residence to a rental or business property
    You are usually considered to have changed the use of part
    of your principal residence when you start to use that part
    for rental or business purposes. However, you are not
    considered to have changed its use if:
    ■ your rental or business use of the property is relatively
    small in relation to its use as your principal residence;
    ■ you do not make any structural changes to the property
    to make it more suitable for rental or business
    purposes; and
    ■ you do not deduct any CCA on the part you are using for
    rental or business purposes.
    If you meet all of the above conditions, the whole property
    may qualify as your principal residence, even though you
    are using part of it for rental or business purposes.”

    I suppose much of this will be open to interpretation. Most professionals that I know, generally go with 5 – 15%, representing only what is truly used. Time will tell what “relatively small” really is.

    Lastly, I would be in full agreement that this truly is CRA’s way to capture PRE dispositions that might not truly be PRE.

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    • Hi, Sandi – good to see your interpretation. For office in home, I agree 5% – 15% is usually about right, but it’s different for basement rentals. There, it is my understanding that one can rent out up to 40% of the total square footage of the house (taking in main floor and basement of a bungalow) before one has passed the “ancillary” use test.

      I also agree with others that this new reporting requirement is – at this time – aimed mainly at non-residents, flippers, and developers who build, live in the house just long enough for it to be a principal residence, sell, and move on to the next property (which has already been being built even as the prior one was his “always” home. Have one of those in the neighbourhood, and am willing to bet that’s our former neighbour’s principal residence for tax purposes even if a “Show Home” sign was up in front of it until the day it was sold.

      My concern is that – down the road – the rules will be changed (and possibly retroactively) so that taxpayers who had ANY non-residential activity – no matter how slight – and who claimed some form of “office-in-home” expenses will find they’ve lost a portion of their principal residence deduction. Given the large number of people who have become – willy-nilly – self employed and who are working from home (let alone the increasing number of employees whose employers require them to work from home), this could be a real windfall for CRA and a tragedy for those taxpayers who were just doing what they had to in order to survive.

      And then there’s the rentals: don’t know what it’s like chez nous, but our mayor has been aggressively pushing secondary (usually basement) suites as a solution to all sorts of housing woes. One thing said mayor NEVER explains is how building this basement suite – so desired by him – could seriously affect the principal residence exemption down the way. But he’s above that; I’m not, and I’m warning people to be wary.

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      • If CRA were to go to the inth degree with this, my understanding is that even if a taxpayer were to stop OIH expenses on the T2125 in 2016 and forward, all previous years would still make the property exempt from PRE.
        For my clients that have had a true rental component to their home (basement apt, etc.), I have always reported this on the Sch 3, proportionate to the percentage of capital use when the property was sold, or no longer deemed capital.

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      • Good points Frances. I agree the don’t go over 40% rule for secondary suites is quite clear, as is not using CCA. Otherwise, I think CRA will have to show a significant change in the use of the property to really challenge the PRE, and as I’ve stated often there is still a lot of grey area that could be exploited by the tax collectors.

        In my area, new residential home builds required a secondary suite because the vacancy rate was horribly low and a hardship to renters. Why would any level of government want to discourage increasing rental stock? Then again common sense is a superpower so we can flip the dice on that.

        Now with revenue hungry governments entertaining any tax on anything they can think of, including air, the lowly and humble tax preparer now has to be a tax planner for their clients’ returns, trying to anticipate how this or that will be interpreted later should CRA show up and want to check your outbuildings, dispatched by cash starved politicos.

        I tell them as clearly and honestly as I can what the worst case scenario is, that CRA could say no to this or that deduction. Then I tell them we have to decide if that’s worth leaving their money on the table.

        In this particular case, imho, I say take your money, they’re not after PRs – this time; anyway, the government already has too much of our dough.

        To be honest I simply don’t trust in how governments will handle theirs and therefore our coming cash flow crises.

        I’ve been aggressive but always on the legal side of tax prep, but I find myself quite concerned what the future holds as boomers’ needs overwhelm pension and medical systems, with a government turning to more and more of the citizenry because not one red cent has been set aside by any governments to mitigate this boomer economic tsunami.

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      • Received from Income Tax Ruling Directorate

        However, it is the CRA’s practice not to apply the change-in-use rules in circumstances where all of the following conditions are met:

        a) the income-producing use is ancillary to the main use of the property as a residence;
        b) there is no structural change to the property to make it more suitable for rental or business purposes; and
        c) no capital cost allowance (CCA) is claime on the property.

        These conditions could be met, for example, where a taxpayer carries on a business of caring for children in the home, rents one or more rooms in the home, or has an office or other work space in the home which is used in connection wtih business or employment.

        The CRA will also look at whether there have been structural changes to make the property more suitable for rental or business purposes. Generally speaking, such changes must be of a more permanent nature, such as the instllation of a separate entry or kitchen, or an addition or reconfiguration of space by adding, moving or removing walls. However, the conversion of a portion of a taxpayer’s principal residence into a separate, self-contained domestic establishment (housing unit) to be used for earning rental income will generally result in the application of the change in use rules.

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  31. Hi there – I’ve been a tax preparer for 23 years and I would like to bring the following section “Changing part of your principal residence to a rental or business property” of Guide T4037 to your attention:

    “You are usually considered to have changed the use of part of your principal residence when you start to use that part for rental or business purposes. However, you are not considered to have changed its use if:

    a) your rental or business use of the property is relatively small* in relation to its use as your principal residence;
    b) you do not make any structural changes to the property to make it more suitable for rental or business purposes; and
    c) you do not deduct any CCA on the part you are using for rental or business purposes”

    YOU MUST MEET ALL THREE CONDITIONS TO BE CAPITAL GAIN EXEMPT

    NOTES:

    a) This means that if you claim 10% of Business-Use-of-Home-Expenses (which is the standard percentage for small home-based businesses) your home is considered primarily a principal residence and is exempt from Capital Gains. Similarly, if you rented 1 room to a boarder in your home, again this would not change the status of your principal residence to a rental income property and is exempt from Capital Gains.

    *However, CRA has to clarify the term “relatively small” in terms of percentage. What they consider “relatively small” is not clarified anywhere on their website.

    b) Turning your basement into a mother-in-law suite or building an office extension to your existing home would make your principal residence more suitable for rental or business purposes. If you did neither of these, your home is considered primarily a principal residence and is exempt from Capital Gains.

    c) In 23 years, I have never claimed the CCA (depreciation) for the business portion of a principal residence. Doing so would automatically expose an individual to having to claim Capital Gains on their principal residence when they sold it. This is not a recommended practice. Therefore, if CCA was not claimed on the business portion of your principal residence, your home is still considered primarily a principal residence and is exempt from Capital Gains.

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      • Hi, Josee – good response. Was in touch with Walter of the Knowledge Bureau when all this was boiling up and his comment was that – at least for a basement rental – CRA considered the rental to be ancillary to the use of the home as a principal residence if the portion claimed was 40% or less. I’ve always adhered to the 40% rule during my many years of doing taxes, and have never taken CCA on the ‘business” portion of a principal residence. Heck, I really discourage taking CCA on a rental property – looks good as minimizes taxes while the property rental, but comes back to bite owner in the butt come selling time as will have “recapture” of all or most of the CCA taken; said recapture happening in one year while the CCA would have typically been spread out over several years.

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      • Your 40% rule is interesting and I’m not in any way arguing with you but not sure if it would qualify for “relatively small” as far as CRA sees it. I am calling CRA tomorrow and asking the question “What does “relatively small in relation to its use as your principal residence” mean”? I look forward to hours and hours on the phone with them being transferred from one department to another ! But you can bet I’ll be taking down Names and Agent#s down !!! But I do agree with you – I never EVER claim CCA on rentals and I always discourage it. However, I do advise clients of the difference it makes with and without because ultimately it is their decision.

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      • Hello again, Josee

        I’ve heard about the 40% rule for many years now, essentially since I got into doing taxes professionally. The rationale for that number is that it allowed a homeowner to rent out a basement suite, which could be done without compromising the use of the home as a principal residence. This was particularly true for the 50’s and 60’s bungalows which were quite large (1100 – 1200 square feet) so a couple could live comfortably on the main floor without the need to use the basement except for laundry, furnace room, and perhaps some storage. So there were a lot of basement suites in areas near us.

        Walter Harder of the Knowledge Bureau commented on this during the most recent tour. He reiterated the three rules you mentioned, using the term “ancillary to the use of the property as your residence”, and mentioned the 40%. In the Knowledge Bureau Report of January 18 (this is an excellent weekly report and free), he explicitly states, :The last criterion has been interpreted by CRA to mean that no more than 40% of the property is rented.” He goes on to say that the rental “is no more than 40% of the livable area of the home.” Walter was specifically discussing coach houses, as West Coast phenomenon, but what he says applies to all rentals.

        What he also emphasized is that “You do not make structural alterations to the property to convert to a rental.” In other words, if you happen to have a basement suite in place in the basement (think adult child or parents who no longer use same) which, with minimum fix-up, you can rent out, you’re okay. However, if you have to build that suite from scratch, or even make a few structural alterations such as an entrance door directly to the outside, then you will be held to have changed the nature of the property and will lose some of the exemption.

        However, I am concerned that CRA will unilaterally change the rules and that they will be retroactive.

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  32. Wholeheartedly agree on never using CCA on a building. Even though we all know buildings slowly depreciate, their market values rise, so they are truly appreciating assets.

    Though there is nothing really new, except the new requirement to report the sale of a PR, but imho people would like to know about possible capital gains implications when taking deductions for secondary suites and other business from their principal residence costs.

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  33. To think all this interest started because I was concerned about having to register our PR if we were claiming self employment. As of tonight this post has been read by just under 70,000 people. A record for CotM. Thanks everyone.

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  34. Hi Again ! I just got off the phone with CRA and as per my previous message, and had them define “relatively small” in relation to rental/business use in a principal residence. The agent I spoke to said the general rule is somewhere between 30-40%. Although this does not appear anywhere in a folio, guide or policy, it is the general consensus amongst the capital gain experts at CRA. She did caution that 40% is almost half and may not be considered “relatively small” but closer to 30% would be considered “relatively small”. Surprisingly, my phone call lasted 10 minutes 🙂

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    • Judi – Instead of wise cracks you might want to read the entire thread to understand the point of this discussion and that is, as of 2016, everyone has to register their Principle Residence, self employed or not.

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    • Judi – one is not “writing off part of your home” when one takes “office in home” expenses. One is just recognizing that portion of the expenses incurred in maintaining the home are incurred to earn income and should be allowed as a deduction against said income. “Writing off part of your home” would be taking CCA on the portion being used to earn income.

      There are very strict rules about what can be taken and how the “office in home” expenses are to be calculated. A dayhome operator has a fairly complex calculation to make because, generally speaking, there is “mixed” use of parts of the home. Or some people have no option but to have an office in home – think a farm family.

      What you are callously saying is that there should be no deduction allowed for the legitimate expenses incurred by a person who operates from a home he/she owns. But if a person is a renter, would you consider the equivalent deduction to be okay?

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    • The problem Judi is that for most middle class citizens, their principle residence is their main saving tool for retirement. When people work from their homes, it is usually because they cannot afford to pay rental space. Remember, like when you are employed, any profit made is your pay cheque. There is no magic money.

      As others have said here, who are more qualified than I am with tax rules, if they don’t claim the Capital Cost Allowance, they should not have to pay taxes on the profit from selling their homes.

      I can only assume you either have a regular job or don’t own a home. The rich don’t care. This has the potential of hitting the middle class who have enough difficulties trying to raise a family, financially support that family and simultaneously pay off the mortgage.

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  35. Pingback: Canadian Patriot Podcast Episode 63 – Matador Arms – Canadian Patriot Podcast

  36. As long as you have designated your home as your principal residence for all the years you have owned it, you DO NOT have to report the ‘profit’ on disposition. You only need to report the proceeds, but not the original cost.

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    • Thanks for your interpretation Sarah. Of the 103 other commenters, most are not definitive as we really don’t yet know what the CRA is going to do with this new requirement. In fact, when I looked on the schedule in question, you actually had to identify what you originally paid and what you sold your PR for. So, yes, you actually do have to report the original cost, starting in 2016.

      Others more qualified than I may respond as well. By now, many tax professionals will already be doing taxes where the taxpayer who runs a small business out of the home, sold their PR in 2016.

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      • I have the form in front of me right now and there is nowhere to enter the cost. If I could screen shot it for you, I would post it here.

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      • Trudeau has really not changed anything other than having to report the sale of your principal residence and this is a step in the right direction of ensuring compliance. And since I can’t screen shot my capital gains schedule, here is an excerpt from the CRA website: “If the property was your principal residence for every year that you owned it, you will make the principal residence designation in your Schedule 3. In this case, the year of acquisition, proceeds of disposition and the description of the property are the information that will have to be reported.” Nowhere are you required to report the original cost of the property.

        In addition, people are worried about losing a portion of the PR exemption if they deduct home expenses related to rental or a home based business. As long as the main use of your home is as a residence and the income-earning part is secondary to that (and you don’t claim any CCA or make structural changes to the home to accommodate the income earning), then you can still deduct home expenses and not risk losing your PR exemption. This is the same as it has always been.

        While this article may have been providing relevant information when it was first written, changes have since been made and there is really nothing sneaky happening at all (IMHO). The very first paragraph is very misleading in itself, as there really has been no change to the rules about claiming home office expenses.

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      • No misleading Sarah. I was questioning the change. This is a personal blog not a news outlet. I disagree. IMO telling CRA that you have sold your PR is new. What you have to do is compare the Schedule page 2 for 2015 with 2016.

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      • Sandy, Sarah – the CRA has changed the original point eight that Sandy quoted. As originally stated, Point Eight sounded very much as if ANY use of the home (rental, office in home, etc.) would disqualify a part of the home from the principal residence deduction. The new version clarifies the under what conditions a home can be used for non-residential purposes, so to speak, and still not lose its designation as a principal residence.

        As a long-time professional tax preparer, I welcome the clarification.

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      • Yes, Sandy. I went onto the CRA website to review precisely what was said, and found that Point Eight has been expanded considerably. Note at the bottom of the print-out that modified 2017-02-28 so looks as if pressure put on CRA to clarify. I know I passed the original article on to an expert in the field, pointing out the ambiguous nature of the wording.

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      • Amazing! Thanks Sarah for your inquiry, otherwise I wouldn’t know of the update. Basically the 100+ comments here did it. This post went viril with more than 100,000 readers. It proves our voices can be heard and make a difference. I’ll have to add an update.

        Like

      • Okay Frances, I have added an update. The thing is I reread Item 8 and I could find much change to the working. However, I only have that one paragraph and only that to compare. Nevertheless, if CRA made updates, I will leave it at that. All the same, I have learned a great deal on the topic. If you hear anything else as the tax season progresses, let me know here or in a Contact Form message.

        Thanks.

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      • Will do, Sandy. The change I noticed is that they were much more specific in detailing the three conditions that would allow one to use part of the home for work/rental and still not change the status. Those weren’t there back in the 2016 version I first saw – just a warning that using part of the house for such purposes could disallow part of the exemption.

        But I’ll keep an eye on this one – I’m not THAT trusting of CRA and its buds. The government needs the money too much. Though, should any of my clients get audited and found to owe, I’m going to push for either the George Radwanski debt forgiveness or the original KPMP – Isle of Man amnesty.

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    • Frances, I have read this blog entry closely and there seems to be quite a bit of confusion as to what “ancillary” means re the test for Rental income for PRE. It seems CRA’s most recent clarification re “question 8” posted on Feb 28, 2017 simply refers to “secondary”. I think this would support your original assessment that it is still eligible for the PRE if it is less than 50%? I am not sure where CRA has stated 40% or less other than this was some administrative past practise? Any further thoughts on this issue?

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      • Hi John

        Agreed, this whole “ancillary” issue is really fraught. However, historically, a 40% rental has been allowed, as representing a basement suite rental but allowing for mutual use of furnace and laundry areas. That is the criterion I have used for many years doing taxes, and it has been allowed all those years. My very serious concern is that our present government – strapped for cash and handing out money they don’t have to all and sundry – particularly foreign entities – to earn credits on the world stage – will now push the CRA to increase restrictions on what should be legitimate deductions so already hard-pressed Canadians are forced to pay for our PM’s virtue-signalling.

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  37. Sandy – sorry if I sounded critical. It wasn’t meant to be at all. This article was linked a few times in the discussions on 2016 taxes in a direct sales Facebook group I am in. I only just stumbled on it and wanted to quell the fears that claiming home office expenses means paying tax when you sell your home. You should see the conversations going on in this Facebook group! I am now trying so hard to convince these ladies that it really is OK to claim home office expenses! I am a CPA in public practice, and also run a side business in addition to a ‘hobby’ direct sales business. I hope I have convinced them all now that it is OK to deduct home office expenses.

    And Frances – thank you for weighing in as well.

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    • The funny thing is the discussion was mainly about selling our principal residence, not whether you could claim expenses. I was an ed psychologist in private practice for years & claiming home expenses has never been the problem. The issue here was the fear that when I do sell, would I have to pay taxes on 15% or more of money earned. It seems now not to be a problem. So you can explain that to your FB group.

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  38. Hi Sandy.

    I agree there is no need to report the “gain” on a principal residence, just proceeds of the sale.

    I also agree that workplace in home expenses does not necessarily mean part of the home will no longer qualify for the PRE, though the famed BC rental guru Ozzie Jurrick said they would this past weekend. In fact that designation schedule makes no mention of business use of he home.

    I also agree that, aside from having to now report the sale of a PRE, and non-residents must indicate when they were not eligible for the PRE, the rules around the PRE haven’t changed.

    But a cursory review of those “guidelines” gives CRA tons of wiggle room to challenge PREs.

    That is my caveat. What happens going forward? Will CRA use the opportunity to challenge the PRE for suites in homes for instance. Though the rules haven’t changed, now CRA will know about the sale of one’s principal residence. I saw a house for sale where an separate one bedroom suite was built, not attached to the home. Is there tax danger lurking there?

    In my area, new homes are all being built with suites. Generally they are limited to 40% of the area of the home, but CRA already thinks that is “too high” for unchallenged PRE.

    What if someone has set up a building on their principal residence for a business? The danger with CRA, as the government becomes more and more desperate for money, with boomers aging and deficits growing, they will, and have in the past, change their “interpretation” of the Tax Act, and could reassess homes with suites or businesses on site, for which they didn’t have that information of the sale in the past.

    I have no problem with the idea the “rules” haven’t changed, and even that CRA has no plans at this time to swoop in on primary residences and try to tax them – at this time.

    That doesn’t mean they won’t try in the future; remember this change was made without a public announcement, nor was it on their election platform. The government is already talking about raising the capital gains inclusion rate to 75% from the present 50%. That could be a double whammy for taxpayers caught in CRA’s tax trap: one has a suite in their PRE for which they must report income and expose themselves to a more “liberal” interpretation of the existing PRE rules.

    I think it would be electoral suicide to mess with the PRE in any way, but that doesn’t mean revenue desperate governments won’t lower the tax bar to quench their insatiable appetite for our money. This could all be cleared up by an official announcement from the government that they will not touch PREs now and in the future, for what it’s worth, given rules already exist to challenge PREs, but now that the government knows about PRE sales, they have the database to do who knows what.

    So, it isn’t the present situation where the danger lies, though no doubt the risk of a PRE being taxed has increased, it’s what CRA and the government will do in the future with the new information they have. I simply don’t trust them and want them to state unequivocally they will not use PRE sale information to audit and reassess taxpayers entitlement to the PRE.

    They snuck this measure in, reporting PRE sales. What else are they planning to sneak in? It’s not paranoia, it’s distrust of the taxman and governments that only want to grow themselves and refuse to rein in their spending, quickly running out of other people’s money.

    That is the crux of the matter, not what this or that schedule says in 2017, but how CRA will act going forward. And before anyone pipes up we have to pay tax and play by the rules, let me say the taxman and government already have enough of our money already, thanks.

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  39. Budget update regarding PRE and principal residences.

    The finance minister’s only comments so far on this issue is people with suites or home offices in the PRs should be aware of the “exemptions to the exemption,” and hinted while 2016 and even 2017 may be OK, the feds are drooling over the idea of taxing PRs with suites, as reported by Ozzie Jurrock and Michael Campbell on his radio show this morning.

    IMHO, we’ll be lucky if the government lets homeowners rent more than a third of their places without tax immediate consequences should they sell. In fact, there’s zero chance of that, expect a CRA visit.

    The wildcard now becomes everybody else, including home offices because they are not backing off, in fact again as reported, the feds have included an additional $40million for CRA enforcement in this year’s budget.

    Watch your tax backsides folks. Tax preparers, it’s time for a heart to heart with your clients about the opportunity cost of staying off CRA sights, now that we’ve been forced onto their radar. They’re already planning deficits beyond their mandate, so this cannot end well.

    Consequently, they’re coming for our money unless we as a people, homeowners, put a stop to this stealth and retroactive effective tax increase.

    Remember, they’ve lost control of their spending with structural deficits over $25b less than two years out from Harper’s balancing act through two financial crises (aka he told us so). The load from pensions and medical entitlements can only worsen, and thus Grits’ thirst for our money, as they become the straw that breaks the back of national productivity.

    The government issued will issue $280b worth debt the coming FY. 10% of that is the result of current overspending. Ever heard of the 10/7 rule? What it reveals is the best case scenario means the federal debt will double from $665b to $1.37t in 7 years. BTW provincial debt equals federal debt with Ontario tipping the scales at $288b, projected to $350b.

    Oh, and unfunded actuarial liabilities at all levels (mostly health care and CPP/OAS etc) – at least $4trillion, for which very little has been put aside. What do you think is going to happen?

    Let’s stop kidding ourselves, they’re coming for our money, they won’t stop, we have to stop them. I see no hope on the political horizon right now, I’m sad to say.

    I may sell this year to get out from under the whole thing, downsize and forget the home office deduction, it’s now part of my consideration. I’m not going to leave money on the table but still it’s the greatest risk I face now – the taxman via a ravenous political leviathan, addicted to my money.

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    • Thanks so much for the update Phil. I am glad my short post opened up the issue for tax preparers. So many of us chose to purchase property that allowed us to work from our property. If I were to start over my practice now I would rent space in order to keep my PR private.

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      • In my area new homes must be suited.

        The maximum suite size is 40% of the overall area of the home, up to 800 sq.ft.

        My understanding is CRA thinks 33% (not 40% to 49%) or less is “ancillary” or minor in relation to the overall use of the home, provided no private access constructed or other major work to make the place rentable.

        What we have here is a tax trap. These homes are built for the express purpose of providing rental stock. CRA doesn’t care if they’re not rented, they’re partially taxable assets.

        When homeowners report the sale of their primary residence on their tax returns, the first thing CRA will do is check 2016 & past returns for net rental income. Tax trap #2.

        If you find any, expect a visit from CRA to check on that, and anything else they can find, and hand you a tax bill.

        I hope the builders and municipalities considered these tax rules and have a solution.

        I won’t get into it why they’ll actually get less revenues if they go ahead with this tax caper, but numbers help put meat on the bone:

        Example: The difference between the purchase and sale price of the PR is $400,000 over 25 years of home ownership.

        It had a mortgage helper, all nice and legal, at 40% of the overall floor space of the PR, rental income duly reported.

        CRA says 40% gets no exemption and is capital gain, which equals $160,000; so let’s see that would a 50% income inclusion (for now), so $80,000 added to income in the year of PR sale. Oh look CRA lets spouses split that income, how nice.

        Taxed at your marginal tax rate, conservatively at 30% is $24,000 tax owed, a retroactive tax increase that began accumulating 25 years ago in this case.

        Kaching. Hey you should have known the rules.

        Only made $200,000, just $12,000 in tax for you. $6000 each to mom & dad.

        So don’t sell, every, let the kids deal with it, but the tax piper calls on the estate instead.

        In a high cost market? Parents had mortgage on the place. Paid it off, thought nothing of it? Right thing to do. Cleared up some debt, the parents would’ve been pleased.

        Oh bad news, CRA says kids owe estate’s taxes. Don’t have it? Screw you, up.

        Tell that to the kids for next time they vote. They did want to find out for themselves how statists bleed everyone, with Justin now their hero.

        Oh did I mention they’ll be taxing the crap out of their pot? But I digress.

        In my community of course there is a separate suite entrance in new builds, with the only saving grace (doubtful) being the home and suite are not separated completely.

        It is illogical in my view to think Finance and therefore CRA aren’t going to jump all over this new primary residence sale information.

        In my view they are preparing to do just that, starting slow but building up.

        How Trudeau and his band of tax marauders plan to get away with this mystifies me.

        To all of those who say well those are the rules which were already in place and the homeowner should have known, I have two responses.

        First, sure go ahead and tell that to Canadian homeowners, that they’re ignorant doofuses who have to pony up thousands to the tax man on the sale of their home.

        Second, the statist and their apparatchiks have enough of our money. They waste every cent of new money we give them.

        If a federal Conservative candidate ran on a promise to demand any new taxes or tax increases, whatever they’re called, must be cancelled out by tax cuts elsewhere, without reducing services – he or she would win big.

        This is huge for anyone who explains it to the people: families getting giant tax bills, kids seeing their parents’ estates taxed away, bittersweet bliss now disaster.

        If we let the Grits talk their way out of this I am concerned for another fatally conceited erosion of our prosperity and liberty.

        Soon both ideas will truly be “American values,” alien in our country. Have the Grits blundered their way out of power on this tax overreach?

        I hope so, but don’t expect any Town Halls. I expect a desperate government to pilfer our money at every opportunity.

        We cannot limit government by allowing it to grow unabated, with evermore new inventions for taxation, (robots are next) because fiscal disaster awaits, evidenced by the economic gong shows of socialism throughout modern history, with its shared misery.

        I believe this is an issue which will catch fire with the public who now will feel personally affected by government excess. Maybe even Ontarians will perk up.

        The Conservatives should move on this now before the NDP decides to take it on.

        For now they’re in the same elitist you can afford it because we want more mode. Not for long I think.

        Sorry for being so long-winded, as usual, but this issue needs to be at the forefront.

        Are the politicians listening? Everyone seems oblivious to this clear tax trap. Keep it alive please, Sandy and others. Thank you.

        Like

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