Published: November 9, 2023
Problem: Principal residence exemption denied
Rotfleisch & Samulovitch Professional Corporation represented a client who had been denied the principal residence exemption during a CRA income-tax audit.
The client had entered into an agreement to purchase the property in British Columbia a few years before the client was able to move in. Approximately six months after the property became available for possession, the property was sold after the client had resided at the property for four months. The client designated the property as the principal residence and filed a Principal Residence Exemption claim.
The CRA tax auditor initially intended to reject the client’s Principal Residence Exemption claim of $184,580 and added this amount to the client’s income in the original tax audit letter proposal.
However, as a result of the detailed tax submissions by our top Toronto tax lawyers the CRA tax auditor accepted the full Principal Residence Exemption claim.
Our Approach: Client was not a “house flipper”
Our experienced Canadian tax lawyers filed detailed submissions in response to the CRA tax audit to demonstrate that the property was intended to be the client’s principal residence and that the client was not in the business of “house flipping”.
Specifically, we argued that the relatively short period of time (i.e., four months) that the client resided in the property, prior to the sale of property, was due to unforeseen circumstances and health concerns.
The client’s intention to use the property as the principal residence should not be denied in consideration of the practical limitations. Therefore, the client should be entitled to claim the property as the principal residence.
Result: Complete tax victory over CRA
Our knowledgeable Canadian tax lawyers successfully defeated the tax audit without proceeding to the notice of objection stage. The CRA Audit Division adjusted its original proposal, reducing the client’s income by $184,580 (from $184,580 to nil) and allowing the full Principal Residence Exemption claim during the sale of the client’s property.
"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."