Forgot to file principal residence designation

[cheapskate43]

In 2018, my father passed away. My mother then transferred 50 % of her principal residence to me as a gift. I still live with her and i am over 18 years old. On her 2018 tax return, my mother forgot to file the principal residence exemption designation forms.

Question 1: Can CRA REFUSE to accept any late filling of the principal residence designation (plus late filling penalty fees) and demand my mother pay the capital gains tax immediately (on her share of the house) despite the house been her principal residence ? She does not have 100k to pay the capital gains tax.

Question 2: My mother did file the principal residence designation forms for a deceased individual on my father's last tax return (2018). CRA says a family unit (the taxpayer, along with her spouse) is entitled to one principal residence exemption per year. Does this mean my mother cannot file anyways her own principal residence designation in the same year ?

[TurboTaxSusan]

Regarding Question 1: The CRA won’t ask for payment until they know about your mother’s gift to you, and they likely will find out only after you have sent in the amended return. So they certainly won’t refuse your adjustment request. If your mother does end up owing money, and cannot pay immediately, the CRA can make payment arrangements, so that she can pay small amounts over time. 

Not reporting your mother’s transfer of part of her property to you isn’t a good option, as the CRA may find out on their own, or if you/your mother sell or rent the house and have to report it on a future tax return.

Before you make adjustments to your mother’s return, you should talk to a tax professional or the CRA themselves to get advice on how to proceed. They should also be able to answer your second question, as the rules regarding the principal residence exception can get a bit tricky when the situation is not straight forward.

If you are in Canada or the United States, you can call the Canada Revenue Agency (CRA) at 1-800-959-8281. If you are somewhere else you can call 613-940-8495. Here are more ways to contact the CRA: https://www.canada.ca/en/revenue-agency/corporate/contact-information/telephone-numbers.html