Prior to 2016, it was CRA’s administrative practice that the disposition of your principal residence was not reportable where the entire gain is exempt. There have been a few court cases where the administrative practice was not upheld because CRA Form T2091 was not filed.
Effective for the 2016 taxation year, all dispositions of a principal residence need to be reported even though the entire gain may be exempt from taxation. Schedule 3 of the T1 return has a simplified portion of the schedule where proceeds of sale and the acquisition and sale dates are entered. CRA Form T2091 (IND) does not need to be completed or filed where the entire gain is exempt.
Reporting also needs to be reported for dispositions that include deemed dispositions arising on death (regardless if there is a spousal rollover) or for a change in use which would occur when the property is converted to rental use and the S45(2) no change in use election is not filed. The foregoing dispositions result in deemed proceeds of disposition equivalent to the fair market value of the property with a corresponding increase in basis for subsequent dispositions.
The principal residence exemption will only be available if the disposition is reported. If it is not reported, a late-filed election by amending the return but with a penalty of $100 per month the reporting is late. In such cases, it may be wise to file the T2091 (IND) with the submission. The maximum penalty is $8,000 pursuant to subsection 220(3.5) of the Income Tax Act. CRA has stated that for 2016, they may apply the penalty in excessive cases.