Cash in on all potential credits and avoid costly pitfalls
Did you buy, sell, flip, or renovate your home in 2020? As you file your taxes, there are some helpful tips and information CRA wants you to know. There are also many benefits you are entitled to that you might not be aware of.
If you bought or built a home in 2020, you may be able to claim the following:
- Claim $5,000 on your tax return:
You may be able to claim the $5,000 home buyers’ amount on your tax return if you bought a qualifying home in 2020. To claim this amount, you must not have lived in another home that you or your spouse or common-law partner owned in any of the previous four years before the qualifying home was bought. Claiming this amount can result in a nonrefundable tax credit of $750.
- Claim the GST/HST rebate on a new build:
You may be able to claim a new housing rebate for some of the GST/HST you paid on your home if one of the following applies:
- you bought a newly built home (building and land) from a builder to use as your principal residence.
- you built or engaged someone else to build a house to use as your principal residence.
- you substantially renovated a house to use as your principal residence.
- Claim home accessibility expenses:
Are you planning to buy or build a home in 2021?
You can withdraw up to $35,000 from your registered retirement savings plan (RRSP): You may be able to use the Home Buyers’ Plan if you are a first-time home buyer and plan to live in the home within one year of buying or building it. This plan lets you take money out of your RRSP to buy or build a home for yourself. You have up to 15 years to repay the total amount to your RRSP.
If you are eligible for the disability tax credit you do not have to be a first-time home buyer to use the HBP. This also applies if you are helping a relative who is eligible for the credit to buy or build a home. The purchase or construction must be done to allow a person with a disability to live in a home that is more accessible or better suits their needs.
Sold, flipped a property or planning to?
- You must Report the sale:
If you sell a property—even if it is your principal residence—you have to report the sale on your tax return for the year you sold the property. How you report depends on what type of property you sell.
If you sell your principal residence or are deemed to have disposed of it, you do not usually have to pay tax on any gain from the sale. This is because of the principal residence exemption. Starting with the 2016 tax year, the Canada Revenue Agency (CRA) allows the principal residence exemption, only if you report the disposition and designation of the home on your income tax return. If you did not report the sale and designation of your principal residence in these years, you need to change your return and file a late designation for the related year as soon as possible.
- Report the gain or profit you made:
If you sold a property that was not your principal residence (such as a rental property or a property that you flipped), you need to report the profit made after all expenses. Your intention matters when you buy a property. If you bought a property mainly to sell it or rent it out or if it was a secondary property and not your principal residence, you may owe tax on any resulting gain or profit.
Canada’s hot housing market
Canadian real estate prices are still growing at a breakneck speed and are reported as the fastest-growing among the G7 nations. Canada topped the list of advanced countries for annual price gains. House prices in Canada’s eleven major cities rose by almost 10% in 2020. The annual growth is now the biggest of the G7 countries. Since the beginning of the Great Recession, Canadian real estate prices have outperformed every developed market by a wide margin. The housing market grew 3x faster than Germany, the second biggest market.
Ten of Canada’s eleven major cities saw rising house prices in 2020. Ottawa recorded the biggest house price increase during 2020 at 19.69%, followed by Halifax (16.32%), Montreal (15.24%), Hamilton (15.06%), Toronto (10.27%), Victoria (7.56%), and Vancouver (7.06%). More modest house price rises were seen in Winnipeg (5.73%), Quebec (4.51%), and Edmonton (1.26%)
As house owners and investors pocket these hefty profits, CRA will also be keeping a close watch to ensure they get their piece of the action as well.