As the Canadian voters prepare to go to the polls, we at Advotax Law traditionally share a summary of political rumours/quotes/documents/video clips and some fact checking surrounding the very important tax issue: the Liberals' alleged plan to tax gain on principal residence. We published a similar summary before the last Federal election in September 2019.
Here is this year's election campaign summary in a True or False/Decide for Yourself format:
True or False? The Liberals Proposed an Anti-Flipping Tax.
True
The Liberal Party in fact proposed an anti-flipping tax on ALL residential properties held for less than 12 months, including principal residences held for less than 12 months. In simple terms, if you sell your principal residence after holding it for less than 12 months, the Liberals propose to tax you, subject to some exclusions.
Here is the exact quote:
"We will establish an anti-flipping tax on residential properties, requiring properties to be held for at least 12 months.
This will reduce speculative demand in the marketplace and help to cool excessive price growth. Changes in life circumstances due to, for example, pregnancy, death, employment, divorce, or disability will be exempt from this policy. As this tax is introduced rules will be established to ensure that sellers subject to this tax are able to deduct legitimate investments in refurbishment."
True or False: We need an anti-flipping Tax because Canada does not currently tax house flippers.
False
Canada already imposes tax on house flippers at the rate of well over 50%, so the proposed "anti-flipping" tax is redundant in many respects (we posted about tax on house flipping here and here).
Arguably, however, the proposed rules would substantially simplify compliance and CRA audit procedures. Instead of determining one's intention for buying and selling a property within less than 12 months (the so-called "intention audits"), CRA auditors would have an easy holding period test to apply. Tax professionals are joking that the Anti-Flipping Tax should really be called Anti-Intention-Audits Tax.
True or False: A Liberal candidate said that paying taxes on sale of principal residence was "what we have to do"
True, but the candidate's quote could have been taken out of context
In or around September 2021, Jason Hickey, a Liberal Candidate, during the online chat with residents of his New Brunswick Southwest riding said that tax on principal residence is coming. It's unclear, however, whether in this short video clip Ms. Hickey was referring to all principal residences or whether he was discussing the Anti-Flipping tax and was referring to just residences held for less than 12 months.
Here is the exact quote:
“But of course, anyone selling their primary residence, if you do make money on that, unfortunately you will have to pay tax on that. I wouldn’t agree to that either, but it’s what we have to do.”
Just moments later, during the same online chat with New Brunswick voters, when asked again about the issue of taxing home sales, Jason Hickey said the party had no plans to do that:
“I don’t believe we plan on bringing that forth — I don’t think we do that,”
If you ask us, we believe that it is quite possible that in the video above Ms. Hickey was only referring to taxing principal residences held for less than 12 months, which was fully in line with his party's official tax proposal.
True or False? Justin Trudeau publicly rejected the idea of taxing gain on principal residence
True, but one of Mr. Trudeau's campaign proposals includes precisely that - taxing gain on principal residence in some cases (see Anti-Flipping Tax)
Prime Minister Justin Trudeau on Tuesday, September 7, 2021, when asked about taxing the sale of primary residences, said:
“We will not do that. That is something that we are not interested in doing.”
In light of the proposed Anti-Flipping Tax, it appears that the Prime Minister meant say "We will not do that, except for properties held for less than 12 months."
True or False? The CRA suddenly begun demanding Canadians report the sale of primary residences on their income tax returns, under threat of an $8,000 penalty.
True, but not "suddenly" and the penalties can be even more serious.
The current reporting rules for sale of principal residence are almost 5 years old, introduced on October 3, 2016.
Individuals who sell their principal residence in or after 2016, have to report the sale on Schedule 3, Capital Gains of the T1 Income Tax and Benefit Return. For dispositions in 2017 and later years, in addition to reporting the sale and designating your principal residence on Schedule 3, you also have to complete Form T2091(IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust).
If you forget to make a designation of principal residence in the year of the sale, it is very important to ask the CRA to amend your income tax and benefit return for that year. The CRA accepts a late designation in certain circumstances, but a late penalty of up to $8,000 may apply.
If you fail to report the sale of your principal residence at all, you may be taxed on the capital gain.
True or False? In 2019, a secret Liberal policy document was leaked to the press. The document proposed "significant tax increases" in the real estate sector.
We can show you the document in question and let you decide for yourself whether the statement is true or false.
In September of 2019, we posted about the supposedly secret Liberal policy documents leaked to the press. The alleged policy document contained strong language in favour of a "significant increase" in tax on capital gains. The author of the document, Liberal MP Mr. Adam Vaughan, vigorously denied that there was ever a proposal to change tax policy on principal residence. Even though the leaked document was titled "Policy Proposal", it was not really a policy proposal, Mr. Vaughan said.
We are always happy to hear our readers' questions and comments. If you heard a new tax policy rumour you wanted us to address, please email us at ask@advotaxlaw.ca.
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Nothing in this article constitutes legal advice and no solicitor-client relationship is created. If you require legal advice pertaining to your specific situation, please contact our tax lawyer.
Please note that this post is only as current as its publishing date indicates, but the relevant rules change constantly.
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