Have you ever missed filing your Tax Return? Or failed to report the selling of your principal residence? If yes, then this blog is what you need right now. This blog emphasizes on the significance of disclosing the sale of your principal residence on your tax return. We will guide you step by step on how to rectify any missed deadlines.
The Importance of Reporting Your Principal Residence
According to Canada’s tax law, the tax implications of selling your residence are crucial. Tax implications are imposed according to the type of property. If the property is sold and designated as a principal residence on the individual tax return, the capital gains will be exempted from tax. The individual will not have to pay tax over the disposition of their property. However, it is important to note that to claim full exemption from tax the property should serve and be designated as a principal residence for the entire duration of its ownership.
Failure to report your principal residence on your tax returns gives out a message that your property is not your principal residence, therefore, you can not claim your exemption once you sell your principal residence. This will lead to paying hundreds of thousands of dollars in taxes to the CRA. This is why designating your property on your tax return is vital.
Did you miss the Deadline? Here’s How to Make It Right
The CRA provides a deadline for the owners of designated property to report the sale of their principal residence, if you miss the deadline there is a high penalty that you must pay. However, with the implications, the CRA has provided owners with a second chance to rectify their missed deadline.
In IC07-1R1 the CRA has addressed the Taxpayer Relief Provisions by setting out guidelines for rectifying their mistake. Here’s how:
Step 1: Report the Principal Residence Designation
First things first report your primary residence, for this you need to complete the Income Tax and Benefit Return form, Schedule 3 of Capital Gains (or Losses).
Step 2: Payment of Penalties
As you failed to report your property on your tax return, you will have to pay penalties for it. According to paragraph 53 of the IC07-1R1, you must attach proof that you have paid your penalties. The penalties accrue at a rate of $100 per month, rising to a maximum of $8,000 as per the new ITA subsection. 220 (3.21).
Step 3: Explanation of the CRA
The last and final step is to provide an honest explanation to the CRA, about the late filing of your principal residence designation. You need to clearly explain your situation and make sure to attach Schedule 3 from Step 1 and the proof of paid penalties as explained in Step 2 in one package while submitting your documents to the CRA. This submission can be made via CRA My Account or can be handled by your tax advisor through CRA Represent a client.
Conclusion
Failure to report principal residence on your tax return may seem like a big problem. Fortunately, every problem has a solution if done in the right way. Communication and honesty with the CRA are the key to rectifying your missed deadlines. To avoid financial instability and paying harsh penalties it is vital to follow these steps and get back on track with your accurate tax records.
Reach out to us at info@ictax.ca and we can assist you with rectifying missed deadlines.
