Article By: Jimmy Le-Tang, Chartered Professional Accountant
You may or may not have heard about recent tax changes regarding the principal residence exemption available on the sale of a taxpayer’s principal residence (residents of Canada only.) The recent changes are significant and I would consider them to be a TAX TRAP because the new rules now require positive action by the taxpayer to claim the exemption and failing to claim the exemption will result in taxes being reassessed on the taxable capital gain.
The ”One-Plus” Rule
The “one-plus” rule enables a taxpayer to purchase a home in a given year and sell their former home in the same calendar year and still be able to claim both residences in the same year as their principal residence. In other words, the “one-plus” rule enables an overlap of one year whereby both residences would still qualify for the principal residence exemption. If both properties are owned for more than one year then one of those properties would be disqualified from claiming the principal residence for the years in excess of one.