“Legal basement suites” are popular in Fort McMurray and for good reason. They create a possible hedge against an occasionally volatile commodity (black gold from the ground). Conversely when the tide rises they can give us an opportunity to get ahead by providing stable cash flow. There are new tax changes coming into effect in Canada, which are important to know when buying or selling a home with a legal basement suite.
When completing your income taxes this spring, reporting for 2016, Canadians are now required to disclose whether they sell a home. Being capital gains exempt on the sale of your primary residence has always been a “gimmie”. In order to qualify for the capital gains exemption with the new changes, additional information will need to be provided to the CRA. Based on the information provided, the full capital gains exemption may not be 100% guaranteed.
If the home is sold, and this newly required information is not disclosed, the CRA will not allow the sale of your primary residence to be tax-free. You would naturally amend such an omission however realize there is a penalty.
“The Penalty is the lesser of the following amounts:
1. $8000; or
2. $100 for each complete month from the original due date to the date your request was made in a form satisfactory to the CRA.”
Now getting back to Fort McMurray’s beloved legal basement suites. If you have one you are now required to report it. This results in a portion of your primary residence not being capital gains exempt as it is “used to produce income”. Not disclosing can result in penalties.
I am a supporter of basement suites as our city benefits. It helps cash flow for owners, creates options for renters, and positions future homeowners to acquire their own residence. This blog is intended to inform. An educated buyer or seller will be in a better position to make a choice they can sleep with at night.
For more information visit http://www.cra-arc.gc.ca/gncy/bdgt/2016/qa11-eng.html