Article content continued

Jamie Golombek, managing director of estate and tax planning with Canadian Imperial Bank of Commerce, says that legally you always had to disclose any disposition of property, but there was an administrative policy by that Canada Revenue Agency that you didn’t have to report a gain if it was your principal residence.

“There was a form for this (for recording principal residence sales) and they said, ‘Just keep it,'” said Golombek, about the CRA policy.

Gains on a cottage or secondary property are considered taxable at the 50 per cent capital gains rate unless you deem it your principal residence, something that would leave you with a tax liability on your main home. The rub is that, if you sold a secondary property and reported nothing on your return, the CRA deemed you to have sold your principal residence and used up the exemption — meaning you could have faced a major tax bill on your primary home, which had probably increased far more in value.

“I think people have been double claiming or claiming (the exemption) inappropriately because no one is tracking it,” Golombek said. “There is no real designation (of principal residence) until you sell. The minute you sell, you make a choice: Am I going to report it or not? If you don’t, the CRA deemed you to have made a principal residence exemption, which means when you sell the other property that you hold concurrently, you cannot use the exemption on the second one.”

While that hasn’t changed, the new wrinkle is that if you sold your cottage first and did not report the sale or capital gain, the CRA can now go back and reassess you indefinitely. If you do nothing, which previously meant you were automatically claiming the exemption, the CRA can now say you’ve squandered that exemption and can potentially fine you. (There is an opportunity to refile your returns, saying you made a mistake.)