What Happens if I Forget to Designate My Principal Residence and the CRA Reassesses Me in Canada?
This answer covers Canadian federal tax law, which applies in every province.
If you sold a home and did not report it, the exemption is not automatic: the CRA allows it only if the disposition and designation are reported, and since the 2016 tax year that means Schedule 3 of your T1 return, even when there is no gain. If you forgot to designate in the year of sale, you ask the CRA to amend the return for that year.
The CRA may accept a late designation in certain circumstances under section 220(3.2) of the Income Tax Act, but a penalty may apply. The penalty is the lesser of $8,000 and $100 multiplied by the number of complete months between the due date and the date of your application. The Minister may extend the time for a late designation, or waive or cancel penalties or interest, if the request is made within ten calendar years after the tax year ends.
Acceptance depends on your circumstances, so reply to the CRA letter by its deadline, gather your sale and purchase documents, and speak with a lawyer or accountant before you file.
Key takeaways
- Since the 2016 tax year, the sale of a principal residence must be reported on Schedule 3 even if there is no gain, and the CRA allows the exemption only if the sale and designation are reported.
- If you forgot to designate, you ask the CRA to amend the return for the year of sale, and the CRA may accept a late designation in certain circumstances.
- The late-election penalty is the lesser of $8,000 and $100 for each complete month between the due date and your application.
- The Minister may extend the time or waive or cancel penalties or interest if the request is made within ten calendar years after the tax year ends.