Determining property value for the PRE

A reader writes:

“In 2008, I sold my principal residence and now rent. I own a second residence that I occupy for six months each year, which, since 2008, has been my principal residence. What paperwork is needed to establish its value in 2008, which will be the base for when it is sold in future or gets transferred to my estate? And where should this information be reported?”

Read: Principal Residence Exemption: What’s changed, what hasn’t

While we encouraged this reader to obtain advice for his specific situation, we asked Keith Masterman, vice-president, Tax, Retirement and Estate Planning at CI Investments, to speak generally about establishing the value of a residence after its purchase date.

“This is an issue we had an awful lot when I worked in the trust administration field,” says Masterman. “The short answer is that a either a letter of opinion from a real estate agent or an appraisal were acceptable. [But] the further from the date of purchase of the property, the harder it is get a valuation.” In practice, he found that “most real estate agents were unwilling to provide a letter of opinion, and [so] a full appraisal was required.”

Update, October 31: After this article came out, an Ontario-based CFP and CPA told us that in his experience, most agents can write up an estimate of relatively current valuations, but can’t do historical estimates.

Read: Pitfalls with the Principal Residence Exemption

As for where to report, the PRE form is Form T2091, and taxpayers must disclose disposal of capital property on Schedule 3 of the T1 tax return. But for tax years that end after October 2, 2016, CRA now requires taxpayers to fill out additional reporting when they claim the PRE.

“The taxpayer will be required to provide basic information in the taxpayer’s income tax return for that year in order to claim the exemption,” the Department of Finance wrote in a release. “In addition, the CRA will be explicitly authorized to accept late-filed principal residence designations.”

It’s unclear if CRA will use existing forms or create a new one for the disclosure.

Have a question? Write us and we’ll do our best to help.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.