Real Estate

Principal Residence Question - Bought in 2019 sell in 2020

  • Last Updated:
  • Dec 21st, 2019 1:33 pm
Tags:
None
[OP]
Newbie
Jun 26, 2013
25 posts

Principal Residence Question - Bought in 2019 sell in 2020

I am currently renting as of now and purchased a home in March 2019. The home has been going under major renovations (extension to house) since then and should be completed in a few months Feb 2020. I have been renting and paying mortgage same time. Few questions:

1) If I decide to list/sell this renovated home in April 2020 and make a profit do I get taxed? This is my only home i own (renting right now) so would that make this my principal residence automatically and I would not be taxed on any profits? Or would this be considered a flip, and if it is I get taxed?

2) if I purchased for X dollars (let's say 1mil) and renos cost 250k would I need to submit my 250k expenses to government to show the home cost 1.25mil and any profits after that is reported (or not) . How does the CRA know what was the reno cost?

I am now considering to sell and try to buy a home few kms away to move to a better school district for my 5 year old. If it makes any profit even better but just looking to see if any taxes need to be paid on the profit.

Any insight would be appreciated.
5 replies
Deal Addict
Sep 13, 2016
2624 posts
1406 upvotes
Mississauga
Experts would chime in, but here is my understanding.
1> Yes, you would be taxed on profits. The rented house you live in at the moment is your principal residence, not the one which you bought and are renovating.
2> If you purchased for X dollars, spent Y dollars on renos, and sold for Z dollars, then your profit is Z-(X+Y). This is amount you will be taxed on. I would suggest working this with an accountant as CRA is very likely to ask documentation for reno costs.
Deal Addict
Mar 3, 2018
1840 posts
1835 upvotes
GTA
If you have never resided there then it would not qualify for the principal residence exemption. Having spent money renovating and then selling quickly you will likely be seen as a flipper by CRA with profits fully taxed as business income. You may be able to argue capital gains tax be applied instead (tax on 50% of the profit only) depending on your intention when you bought.

It will be up to you to support your reno costs with CRA. As far as they are concerned your cost base is your purchase price. Your reno costs will reduce the profit that will be taxed so it is in your interest to document them well.
Member
May 12, 2003
371 posts
235 upvotes
GTA
1) Not principal residence since you never resided in the house, therefore no deduction
2) CRA knows the cost as you report it AND can audit all that up to 7 years after year end
3) Something for you to consider is HST issues. If there's substantial renovation, you may have to charge HST to the new buyer and/or include it in the price. From there, you will have to remit HST to the govt.

Contact a decent accountant who can help you sort this out. Please don't find one on Kijiji.
Deal Expert
User avatar
Aug 2, 2010
15193 posts
4924 upvotes
Here 'n There
givemetheloot wrote: I am currently renting as of now and purchased a home in March 2019. The home has been going under major renovations (extension to house) since then and should be completed in a few months Feb 2020. I have been renting and paying mortgage same time. Few questions:

1) If I decide to list/sell this renovated home in April 2020 and make a profit do I get taxed? This is my only home i own (renting right now) so would that make this my principal residence automatically and I would not be taxed on any profits? Or would this be considered a flip, and if it is I get taxed?

2) if I purchased for X dollars (let's say 1mil) and renos cost 250k would I need to submit my 250k expenses to government to show the home cost 1.25mil and any profits after that is reported (or not) . How does the CRA know what was the reno cost?

I am now considering to sell and try to buy a home few kms away to move to a better school district for my 5 year old. If it makes any profit even better but just looking to see if any taxes need to be paid on the profit.

Any insight would be appreciated.
It's called 'principal residence' for a reason and it wasn't that for you so you'll be taxed. Commit tax fraud (which costs all of us in higher taxes) by not declaring it and you'll end up paying huge penalties and interest. The CRA is specifically viligant in focusing on short flips like yours, ie anything close to a year.
Deal Addict
Nov 16, 2011
1285 posts
978 upvotes
HAMILTON
it is a flip whatever else you may try to call it......

Top