CLOSING PRINCIPLE RESIDENCE TAX LOOPHOLES
In efforts to slow the flood of foreign investment in hot Canadian housing markets like Vancouver and Toronto, the Canadian government is cracking down on what they're calling the abuse of capital gains exemptions by non-residents. Their intention is to ensure the principal-residence exemption is only available to individuals who reside in Canada in the year the home is purchased.
According to the Globe & Mail, in the past, their have been two main ways that non-residents have taken advantage of tax loopholes:
"In the first scenario, the breadwinner claims to be a non-resident of Canada and pays no taxes here, while their spouse and children buy and sell homes registered in their names. The homes are purchased with money received as a “gift” from the breadwinner. The homes can then be sold tax-free, because the family members claim to be residents of Canada, classify the properties as their principal residences, and therefore pay no tax when they sell.
There is more widespread abuse in a second scenario, according to experts. That is when the breadwinner claims to be a resident of Canada but then doesn’t report their worldwide income to the Canada Revenue Agency, as required by law. Because they claim to be residents, they can sell Canadian properties in their name, tax-free, even if they spend little or no time in Canada."
The changes were announced Monday, October 3rd.