Non-taxable income (hence not reported on tax return) to support parents sponsorship application

[Dimon1]

Hi everyone,

I am one of the lucky people who received an invitation to apply for the parents and grandparents program in 2021.
After few days of excitement, I finally settled down and focused on document preparation, that is when I realized that I don't meet income requirements for 2018 year (ironically, the only year for the past 8 years) because my wife and I took half a year off work to prepare our house for sale.

We made a good profit on the sale, but none of it is reported as income since the house was our principal residence:

" When you sell your principal residence or when you are considered to have sold it, usually you do not have to report the sale on your income tax and benefit return and you do not have to pay tax on any gain from the sale " - CRA website

Questions I have for you guys:

1. Was anyone successful in using income that is not reported on income returns to support parents' sponsorship application? For example, I could upload a letter explaining that we gain a significant amount of money from the sale of the house that year.
2. Is it a bad idea to amend tax returns for 2018 to include some of the gains from the sale of the house as business income since we worked on the house for few months to maximize sale value?

My immediate concern with this is triggering CRA penalties, perhaps it is not even legal.

Please share your experience.

 

[scylla]

Hi everyone,

I am one of the lucky people who received an invitation to apply for the parents and grandparents program in 2021.
After few days of excitement, I finally settled down and focused on document preparation, that is when I realized that I don't meet income requirements for 2018 year (ironically, the only year for the past 8 years) because my wife and I took half a year off work to prepare our house for sale.

We made a good profit on the sale, but none of it is reported as income since the house was our principal residence:

" When you sell your principal residence or when you are considered to have sold it, usually you do not have to report the sale on your income tax and benefit return and you do not have to pay tax on any gain from the sale " - CRA website

Questions I have for you guys:

1. Was anyone successful in using income that is not reported on income returns to support parents' sponsorship application? For example, I could upload a letter explaining that we gain a significant amount of money from the sale of the house that year.
2. Is it a bad idea to amend tax returns for 2018 to include some of the gains from the sale of the house as business income since we worked on the house for few months to maximize sale value?

My immediate concern with this is triggering CRA penalties, perhaps it is not even legal.

Please share your experience.

1. This won't work. The income needs to appear on your NOA. Proceeds from the sale of a house cannot be counted. IRCC will ignore the letter.
2. I don't see how you can count the gains from your primary residence as business income. It doesn't fall in that category so this doesn't really make sense.

If you refile and declare new income, then you will be taxed on that income. Ultimately the sale of your primary residency does not generate business income. If you want to amend your 2018 return, I think you should speak with a tax specialist to find out what you can and can't do and what the implications will be.

 

[canuck78]

Hi everyone,

I am one of the lucky people who received an invitation to apply for the parents and grandparents program in 2021.
After few days of excitement, I finally settled down and focused on document preparation, that is when I realized that I don't meet income requirements for 2018 year (ironically, the only year for the past 8 years) because my wife and I took half a year off work to prepare our house for sale.

We made a good profit on the sale, but none of it is reported as income since the house was our principal residence:

" When you sell your principal residence or when you are considered to have sold it, usually you do not have to report the sale on your income tax and benefit return and you do not have to pay tax on any gain from the sale " - CRA website

Questions I have for you guys:

1. Was anyone successful in using income that is not reported on income returns to support parents' sponsorship application? For example, I could upload a letter explaining that we gain a significant amount of money from the sale of the house that year.
2. Is it a bad idea to amend tax returns for 2018 to include some of the gains from the sale of the house as business income since we worked on the house for few months to maximize sale value?

My immediate concern with this is triggering CRA penalties, perhaps it is not even legal.

Please share your experience.

You are suggesting tax fraud by reporting income that didn’t exist which is never advisable and create huge longterm problems and potential auditing. Income made from the sale of a primary home doesn’t count towards LICO because it isn’t regular income that can be counted on to support parents on a yearly basis.

 

[Dimon1]

You are suggesting tax fraud by reporting income that didn’t exist which is never advisable and create huge longterm problems and potential auditing. Income made from the sale of a primary home doesn’t count towards LICO because it isn’t regular income that can be counted on to support parents on a yearly basis.

There are plenty of exceptions to regular income (examples are below). That is why I posted here hoping that someone in a similar situation tried submitting an explanation letter.

Income that does count toward your total income (as long as it’s reported on your NOA):

• Employment Insurance special benefits, such as maternity and parental benefits
• any Employment Insurance earnings for the 2020 tax year
• Canada Emergency Response Benefit
• other temporary COVID-19-related benefits
  • as long as they are not part of provincial social assistance programs
• paid parental leave
• RSP/RRSP withdrawals

 

[Naturgrl]

There are plenty of exceptions to regular income (examples are below). That is why I posted here hoping that someone in a similar situation tried submitting an explanation letter.

Income that does count toward your total income (as long as it’s reported on your NOA):

• Employment Insurance special benefits, such as maternity and parental benefits
• any Employment Insurance earnings for the 2020 tax year
• Canada Emergency Response Benefit
• other temporary COVID-19-related benefits
  • as long as they are not part of provincial social assistance programs
• paid parental leave
• RSP/RRSP withdrawals

You are quoting the statements for LICO levels for 2020 only due to Covid. Keep reading…

Since many sponsors may have been affected financially by the COVID-19 pandemic, the income requirement for the 2020 tax year has been reduced to the minimum necessary income, instead of the minimum necessary income plus 30%.

Note: This does not affect the income requirements for the 2019 and 2018 tax years.

So for 2018 and 2019, you can’t count that income you posted.
https://www.cic.gc.ca/english/helpcentre/answer.asp?qnum=1445&top=14

 

[canuck78]

There are plenty of exceptions to regular income (examples are below). That is why I posted here hoping that someone in a similar situation tried submitting an explanation letter.

Income that does count toward your total income (as long as it’s reported on your NOA):

• Employment Insurance special benefits, such as maternity and parental benefits
• any Employment Insurance earnings for the 2020 tax year
• Canada Emergency Response Benefit
• other temporary COVID-19-related benefits
  • as long as they are not part of provincial social assistance programs
• paid parental leave
• RSP/RRSP withdrawals

Many of those examples are only for 2020. Others like EI parental leave would never been declared for 2018 suddenly in 2021.