Late Reporting of a Home Sale: CRA Penalties in Ontario

Many Ontario homeowners assume that selling the home they lived in needs no mention on their tax return. Then a letter arrives, or an accountant points out the gap, and the question becomes what happens now.

This article explains why the sale should have been reported, how the late-designation penalty is worked out, and the general route for asking the CRA to accept a late filing. Your own facts matter, so a lawyer or accountant can confirm how this applies to you.

Why a home sale has to be reported

The principal residence exemption usually means no tax on the sale of your home, but it is not automatic on paper. The sale must be reported on Schedule 3, Capital Gains or Losses, and the property is designated by ticking box 1 at line 17900 of Part 1.

Form T2091(IND) is also completed and included with the return. Only page 1 is completed if the property was your principal residence for all the years you owned it, or all but one.

This applies even if the home was your principal residence for every year you owned it. It also applies to a deemed disposition, such as a change in use.

How the late-filing penalty works

Under subsection 220(3.5) of the Income Tax Act, the penalty for a late-filed election or designation is the lesser of $8,000 and $100 for each complete month from the original due date to the date of the request.

In plain terms, the penalty grows by $100 for each complete month that passes, until it reaches the $8,000 ceiling.

The CRA may accept a late designation in certain circumstances, although a penalty may apply.

Asking for late-filing relief

The Minister may extend the time for an election if you apply within ten calendar years after the end of the relevant tax year. How this applies to a home sale designation depends on your situation, so it is worth confirming with a lawyer or accountant.

You may have seen that the CRA once said it would assess the late-designation penalty only in the most excessive cases for 2016 and 2017 sales. That relief applied to those years only and should not be assumed to apply to a more recent sale.

Whether a penalty applies in your case depends on your facts. A lawyer or accountant can help you prepare the request and explain what to expect.

What if the sale was never reported at all?

If a real estate sale was not reported, the CRA may reassess beyond the normal reassessment period, limited to amounts related to that sale. Fixing the omission sooner is generally better than waiting to be contacted.

The exemption itself is worked out with a formula in paragraph 40(2)(b): the gain is A minus (A times B divided by C) minus D. B counts the years the property was your principal residence while you were resident in Canada, plus one in some cases, and C is the number of years you owned it. If the home was your principal residence for every year, the taxable gain is generally nil, but it still has to be reported.

• Only one home can be designated as the family's principal residence for each year from 1982 on.
• If you sold more than one former principal residence in the same year, a separate Form T2091(IND) is filed for each property.
• A home bought mainly to sell for profit may not get the exemption treatment.

What to do next

• Find the closing documents: the purchase price, sale price, legal fees and realtor commission.
• Note the dates you bought and sold, and the years you lived in the home.
• Check whether you owned any other property that you might want to designate for the same years.
• List any rental use, renovations or change in use during your ownership.
• Work out how many complete months have passed since the original due date.
• Speak with a lawyer or accountant promptly about a late-filing request.

Sellers who held the home for less than 365 days or who bought mainly to resell face different rules, so share those details early with your adviser.

Frequently asked questions