You mean, because the change in use causes a deemed disposition? Perhaps, but CRA hasn’t questioned any of the ones I’ve filed in the last 30 years (maybe 5 of them in total). However, now that everyone has to report the “deemed disposition” of a principal residence using the T2091, it will be more obvious that such a deemed disposition occurred, and I will soon find out if I’ve interpreted the 40(2) rule incorrectly all these years…
Thank you for all the comments!
@Nezzer - The house did sell in 2022. So if we file as suggested, just using the PRE, there is no deemed disposition in 2017 at FMV and they just file reporting the gain from 2009 to 2022 using the original ACB (with the first 8/13 years using the PRE)?
I’ve been told elsewhere that that is an option to file like that, but I’m just confused because originally I was told they should have filed the T2091 in 2017, and if they had… they would have to use the 2017 FMV as their new cost base… Is that still an option if the calculation works out better?
Basically what I am trying to clarify is, can they choose the 2017 FMV as their cost if they file a late T2091 under the voluntary disclosure program, or choose to just calculate the normal gain and apply the PRE on their 2022 return since they just sold it… either method would be acceptable?
Thank you for your time!
Yes. Doesn’t need to be filed under the VD program, but a VD filing may reduce the probability of penalties.
As I understand it, yes. I have done this for clients several times. But, as @Arliss points out, I may be wrong about that. If so, I have not seen any backlash from CRA. But all of these instances were pre-2017 tax returns, before the existence of the T2091, when we were not required to report the sale of a principal residence.
I suspect the taxable gain will be smaller if you use the 2017 FMV as your “cost amount” for the 2022 sale (and DON’T use the PRE formula). My clients who chose to use the PRE formula may have paid more tax than they needed to, but chose to do so because of the hassle to get an appraisal done as of a date in the past - particularly if they had no pictures to show the appraiser what condition the house was in as of that historical date.
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@Nezzer thank you!
If she wants to use the FMV, she should file her 2017 T2091 late under the VDP - do you know if both her and her husband would have to file their own VDP and T2091, or could they file one jointly (it’s 50/50). Since CRA is on strike and the deadline is days away no one can take their returns on, so I’m trying to help them file but not confident on what is needed as backup for the VDP - do they need to print full copies of their 2017 returns, the schedule 3, and the T2091 each? If electing to use the FMV do they need to have an official appraisal to send along with it?
I’m so sorry for additional questions, you’ve all been so helpful thank you!!
Sorry, I’ve used the VDP only once, and it was for a client who had not filed anything for several years. In that case, we had to file the entire tax returns for each year. In your case, I’m not sure.
I would guess that yes - each spouse would have to sign their own T2091, and send it in. S3 is a good guess - I would probably include those for each spouse. But, I suspect that if you sent in the full T1, it would confuse the CRA agent (when they eventually get back to work and start looking at these). They might think you are filing an original return for 2017 which can’t be done because it was already filed. They would eventually figure it out, but may cause delays.
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Thank you! Any thoughts on if they send in an official appraisal with the VDP/T2091’s for the 2017 FMV? Or just have one on hand if CRA requests it? The VDP protocol says the submission needs to be complete, so I just don’t want to miss something and have it denied so trying to do the best we can 
Typically you wouldn’t send an appraisal with the original filed return, so my guess is no - you wouldn’t HAVE TO send it with the VDP documents. But, since a VD filing will be handled by a human, I expect the probability of them asking for supporting documents is higher than normal. If you have the appraisal on hand, it can’t hurt to send it with the T2091, etc.
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Be sure to keep a copy of the appraisal. CRA has been known to LOSE documents.
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Thank you!
Will do, thank you!
On schedule 3, do I report the gain from selling in 2022 in the “Personal-use property” section since it was principal residence before it turned into a rental?
For the acquisition date: The original acquisition date was 2009 and it turned into a rental in 2017, so there was a deemed disposition at FMV in 2017, which becomes the new ACB and I assumed 2017 would be the new “acquisition date.”
So on the forms, we have said they owned the property for 5 years (it asks for # of tax years ending after the acquisition date - which I’m saying is 2017), and we have said 0 years are principal residence. But on the T2091, the calculation pops out the gain and then divides it by 5 and removes 1/5th for PRE… I wasn’t expecting they would still get the PRE - does that make sense? I assume its related to the +1 year, where both properties (old home and new home) qualify for PRE in 2017…
I’m just worried only getting taxed on 4/5ths of the gain from 2017 to 2022 means only 2018, 2019, 2020, 2021, 2022 are being elected as not the principal residence, so 2017 won’t be available for the PRE for their new house…
I’m sorry this is so complicated to us!!
If you are NOT using the PRE formula, you are saying there was a deemed disposition in 2017. As such:
On the 2022 tax return do NOT include a T2091. Report the sale on Schedule 3 in the “Real Estate” section. Enter “2017” as the Year of Acquisition, and the 2017 appraised value as the Adjusted Cost Base. Use the 2022 sale price as Proceeds of disposition. Any legal fees and realtor commissions related to the 2022 sale can be summed up and entered under Outlays and expenses.
That’s all you need to enter (other than the address, etc).
If you ARE using the PRE formula, you are saying there was NOT a deemed disposition in 2017. As such:
Do not enter anything on Schedule 3 except the bottom section - under “Principal residence”. Enter 2009 as the “Year of acquisition” and use the 2022 sale price as “Proceeds of disposition”. Where the question asks, “Was the property the principal residence for all years the taxpayer owned it?” - answer “No”. Then go to the T2091 and enter 9 years as the number of years it was the principal residence (this is the line with a “1” on the right side, indicating “line 1”). Then, line 10 will turn yellow, indicating you must enter the adjusted cost base - this is the price paid in 2009 - enter this in the yellow box. You may also record outlays and expenses on line 9 - legal fees and realtor commissions incurred in 2022.
That’s all you need to enter (other than the address, etc).
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Perfect! That’s what I changed it to this morning! I sure wish my sister hadn’t left this so late and relied on me so much to help figure this all out but I think we’re looking good now!
I can’t tell you how much I appreciate all of the responses you’ve given us, thank you so so much!!
what would be the convincing words for voluntary disclosure if that was simply overlooked to be filed for 2022 tax return?
Good question for a tax lawyer…
Or a VD specialist…