The tax implications of switching a rental property into a principal residence and reporting obligations after a home sale were among the topics raised in the latest batch of reader letters. Here’s what they wanted to know.
Q: “I bought a home in 2011. It was my principal residence until 2014, when I rented it out and purchased another residence. I intend to move back to my original house in 2017. It hasn’t really appreciated much since 2014. Am I supposed to report this to anyone? Will it require an evaluation?”
A: Probably not. Just keep your municipal tax slips. The federal and provincial tax departments likely would accept the municipal evaluation of the property for the years in question as sufficient proof of value. Because you’re changing the use of the property (from rental to principal residence), you are supposed to report the change to both the federal and provincial tax departments. (You were also supposed to report it when you did the prior switch in 2014). If you didn’t claim capital-cost allowance on the property during the time you rented it, you won’t be obliged to pay any capital-gains taxes now for the brief period you rented it. You can make an election with CRA to postpone any tax until you actually sell the property. An election with CRA would automatically apply for Quebec tax purposes as well, but Revenue Quebec will want a copy of what you send CRA for its files. If CCA was claimed, however, you’ll have to cough up for the 2017 tax year.
Q: “You recently reported that the federal government will require homeowners to report sales of a principal residence to the tax department in 2016 and beyond. You also said Quebec already had this measure in place. Are Quebec residents obligated to report home sales even if it was their principal residence?”
A: It’s been in the provincial tax code for a while. When Quebecers sell a property, transfer ownership to someone else or convert it into or from an income-producing property, they’re supposed to complete provincial tax form TP-274-V (Designation of a Principal Residence) and include it with their provincial tax return in the year of the transaction. Quebec says failure to do so may lead to “all or a portion” of any profit being treated as a taxable capital gain.
Q: “I made an emergency withdrawal from my RRSP this year and was shocked by the fees charged: administration fee, GST, withholding tax. I didn’t expect all of this. Can I deduct these fees from my taxes?”
A: The withholding tax is actually income tax, and you’ll be credited for the amount paid when you get a slip (T4RSP) from your financial institution to include with your 2016 tax returns. (For Quebecers, the withholding tax is 21 per cent on RRSP withdrawals up to $5,000, 26 per cent for amounts between $5,000 and $15,000 and 31 per cent on $15,000 or more). The bad news is, the actual amount of taxes owed may be higher than the amount withheld. Ultimately, it will depend on your total 2016 income (which will include the RRSP withdrawal). You could end up owing more than they took off. As for the other fees, they’re not tax-deductible. All the more reason to keep RRSP withdrawals to a minimum.