Last updated: May 16 2024

Capital Gains Complexity: It Could Affect Your Principal Residence

While the government has stated that the new capital gains inclusion rules will not apply to the sales of a principal residence, which qualify for a principal residence exemption, the reality is that there are some important exceptions.  Consider the following and join us on May 22 for the CE Savvy Summit to have a peer-to-peer learning experience, earn 15 CE Credits and obtain access to a comprehensive Retirement and Estate Planning Certificate course and recorded presentations that cover the details.

What Principal Residences are Affected?  Taxpayers who live on larger pieces of land on which the principal residence is situated will pay more under the proposed capital gains inclusion rate changes.  Specifically, the principal residence exemption is for the home and 1.24 acres (one half hectares) around the home for its use and enjoyment.  More can be allocated to the principal residence calculation however in certain cases.

What should be Considered? Narrowing down the profile of clients affected depends on answers to these questions:

  • Was the home built in a community that at the time did not allow lots below certain sizes? The taxpayer needs to contact the land registry office or their local MD and request a copy of the bylaws for the time they purchased or built their home.
  • CRA uses 1.24 acres as their guide but makes exceptions for if the homeowner can prove additional land is required to make the home useable or enjoyable. For example, the distance between the well and the buildings, hillsides, wetlands, etc. Clients and their advisors need to dig for those details and make notes to justify a full PRE.
  • Importance of Property Tax Assessments. Many jurisdictions will provide a breakdown in the value of the land and the home separately. This is valuable information because it allows the original purchase price (plus improvements which form the ACB) to be prorated between land and building. This way in the future when the property is sold with the help of an appraiser to calculate the fair market value of the building.

If Capital Gains are below $250,000 – so 50% inclusion rate applies – the news is good for the taxpayer.  But they may in fact be over the threshold.  In all cases, supportable documentation in the event of a CRA challenge will be required.

Bottom Line:  There is an opportunity for tax and financial advisors to add value by being proactive in engaging their clients in all of the activities above.

Register now! Join us at the live event or take the Knowledge Bureau’s Advanced Retirement and Estate Planning Course which will include instruction recorded live from Evelyn Jacks, Doug Nelson and Carol Willes.