Steve Blazino

Changing Your Principal Residence into a Rental Property

Thursday, July 28, 2011 by Steve Blazino

 

It is not uncommon for individuals to relocate for work or studies on a short to mid-term basis. In these circumstances the individual usually does not want to go through the cost or hassle of selling their residence only to return to the municipality a short time later. As a result, the individual may rent out their house as a way to cover operating costs or create profit during their absence.

When there is a change in use from personal to income producing, the Income Tax Act deems the individual to have disposed of and reacquired the property at fair market value (FMV). The result of the change is that the individual disposes of his/her residence for FMV in the year of the change in use and any increase in value over original cost (plus additions) is a taxable capital gain. If this is the individual’s principal residence the gain is then sheltered from tax due to the principal residence exemption (PRE). The exemption is claimed on Form T2091; however, it need not be filed with your return.

Most individuals are not aware of this situation, but nonetheless a tax liability does not occur due to the PRE. However, there can be other adverse tax consequences in subsequent years if elections are not filed.

A common situation is as follows: an individual relocates for a few years to pursue employment opportunities. The individual has every expectation of returning to her original residence, which she has owned for 5 years, and decides to rent out her home during her absence. At this time, she has a deemed disposal at FMV which is sheltered by the PRE. At her new location she resides in an apartment. She files her tax returns and claims the net rental income on her tax returns.

Three years pass by and she decides to sell her original residence and remain at her new location. As a result, she will realize a taxable capital gain based on the value of the residence at the time of sale, less the FMV at the date the change in use occurred. If she were to move back to her original residence, the same is true; she has a deemed disposal and reacquisition at FMV. She would be taxed on any increase in value of the property while she was absent.

This is where the election allowed under Subsection 45(2) of the Income Tax Act is invaluable. This election deems the change in use not to have occurred and remains in effect until the election is rescinded. This election also allows the taxpayer the option to claim the PRE on an extra four years even though the taxpayer did not reside there. In order for the election to be valid, the following must occur:

  • Capital Cost Allowance (CCA), more commonly referred to as amortization or depreciation, must not be claimed on the rental schedule; and,
  • The election must be filed in the return for the taxation year in which the change occurred. Canada Revenue Agency will accept a late-filed election if CCA has not been claimed, but penalties may apply.

You must proceed with caution... if you rescind the election (or claim capital cost allowance), you are deemed to have disposed of the property at the beginning of that year and a disposition must be recorded at fair market value in that respective year.

If you have any questions, please consult your local MNP Tax advisor or contact me; we would be happy to assist you.

Subscribe to email updates of MNP Tax blog posts here >>

Comments:

Monday, July 23, 2012 - 05:34AM GMT | David Plackett
Dear Sir, After a bit more than 13 years living and working in Denmark, during which we have filed Canadian tax as deemed residents, my wife and I are returning to Vancouver next month. During this time away we have rented out our Vancouver house for about 11 years and plan to move back into the house at the beginning of October this year. Since we have never claimed CCA on the property in our Canadian tax returns in the intervening years, as I read the notes on your web site we could elect to file under sub-section 45(2) for the 2012 tax year and thereby defer tax on capital gain until we decide to sell the house, while also claiming the property as our principal residence for four years prior to our return. Could you please confirm that my interpretation is correct? Thank you. David Plackett
Monday, July 30, 2012 - 02:43PM GMT | Steve Blazino
Yes, you are correct in that an election would need to be filed for the taxation year in which the change occurs. The actual election would be filed as per S. 45(3), as it is a change from income producing to principal residence, assuming no CCA has been claimed. The four year rule is also in effect as long as you were a resident or deemed resident of Canada during these years, please see paragraph 29 from Canada Revenue Agency`s IT Bulletin. IT Bulletin - 29. Similar to the treatment for a subsection 45(2) election, a property can qualify as a taxpayer's principal residence for up to four taxation years prior to a change in use covered by a subsection 45(3) election, in lieu of fulfilling the “ordinarily inhabited” rule (discussed in ¶ 5) for these years. As in the case of a subsection 45(2) election, residence or deemed residence in Canada during these years is necessary for the full benefit of the principal residence exemption to apply. Furthermore, the rule described in ¶ 6 prevents the designation of more than one property as a principal residence for any particular year by the taxpayer (or, for any particular year after the 1981 taxation year, by the taxpayer or any other member of his or her family unit). --Steve
Thursday, August 16, 2012 - 12:20PM GMT | Tony
Dear Steve, We are most likely taking a year to travel and caretake a home in the US - this would span roughly August through the following July. We plan on renting out our home in Canada while away (we are dual citizens CAD/USA). Just want to make sure that I'm reading this corrcetly in that we can return to our Canadian home without worrying about a capital gain tax liability as long as we make the proper election to change use in 2012 to an income property, file the PRE, and change the election back to principle residence in 2013 when we're back in our home. No CCA would be claimed. is thiscorrect in a nutshell? - Thanks, Tony
Friday, August 17, 2012 - 09:24AM GMT | Steve Blazino
Yes, that is correct Tony, be sure to make the election with your 2012 income tax return by April 30, 2013.
Sunday, August 19, 2012 - 07:49PM GMT | Ann
We just moved into a new house that we built in a very small community and then my husband got laid off. He finally found a new job 500 kms away and rented an apt there. I stayed in our home for 6 months and am now going to join him. We cannot afford to pay the mortgage on a house and rental for an apt, so we are renting out the house to cover the mortgage costs. We plan on moving back in 5 years and retiring in our home. Can we file an election to keep our home our principal residence? The language on the CRA site says 'if your employer wants you to relocate' as one of the conditions to keep claiming the house as principal res. That makes it sound like only those working for a big corp who get transferred from one office to another qualify - but that seems unreasonable that only those select few who move due to transfer qualify. Can you clarify please?
Monday, August 20, 2012 - 10:14AM GMT | Steve Blazino
Yes, you can file the election, the statement from the CRA that you are referring to (I believe) is in respect of having the house as your principal residence for more than the four year period. In any event, file the election and do not take depreciation on your home and you will be fine. --Steve
Thursday, September 13, 2012 - 04:32PM GMT | Anonymous
What if you rent out your home because of financial difficulties (2006) and go live with a family member. Then after 7 years (once in better financial condition) decide to move back into my home (this fall). Are there implications for me. I did not file any elections in 2006 (I did not know about them). Should I just continue to rent it cause I can't afford to pay a capital gain tax?
Friday, September 14, 2012 - 11:11PM GMT | debbie
I purchased a condo pre-construction in 2006, it closed Oct 2009. I have been renting it out since Feb 2010. My tenant will be vacating the property on Oct 10 2012. I plan on selling the condo soon after. I do not own any other properties, can I claim this as my principle residence if I live there for 4 months before it sells? and will I be exempt from all capital gains? I have been declaring a rental loss every year since it was rented out? Thanks!
Monday, September 17, 2012 - 01:24PM GMT | Steve Blazino
Upon moving back into the rental you will be deemed to have disposed of and reacquired the property at FMV, resulting in capital gains tax and possibly recapture of capital cost allowance. You may however elect under S.45(3) to not have this change occur if and only if you have never claimed capital cost allowance on the property while it was a rental unit. If the election is available you will include the gain income when you actually dispose of the property. --Steve
Monday, September 17, 2012 - 01:25PM GMT | Steve Blazino
You may be able to shelter a portion of the gain assuming you actually 'ordinarily reside' in the condo prior to sale, however, the entire gain will not be sheltered. A proper answer to your question requires more in depth analysis of the situation.
Tuesday, October 02, 2012 - 04:20PM GMT | Sandy
Hi Steve, I moved into a new house (which I own) in June 2011, and in June 2012 I moved out due to a new job. I am currently renting out my house for 2 years. Do I file the election under Subsection 45(2) with my 2013 tax return? Also, I realize CCA cannot be claimed when election is filed, but what about maintenance expenses, mortgage interests and expenses related to home/appliance repairs. Can these be claimed against my rental income? Thanks
Friday, October 05, 2012 - 11:31AM GMT | Rosse Marye
Hello Steve, My husband and I moved to Costa Rica on March 2011 for work. We are Canadian Citizens and have Rental Income for 3 houses here in Canada (one is our PR)non of them is being depreciated. We lived in our PR for 3 years before we moved. We are planning to stay for 2 more years in Costa Rica. Can we file the election in our 2012 Taxes or we have to wait until we come back on March 2015 and file it with our 2014 Tax Return? Thank you for your help.
Tuesday, October 09, 2012 - 10:07AM GMT | Steve Blazino
The election is to be filed with your 2012 year (the year in which the change occurs). The other expenses you have listed can be deducted against the rental income. --Steve
Tuesday, October 09, 2012 - 10:09AM GMT | Steve Blazino
Rosse, the election is to be filed in the year of change, 2011. If CCA has not been claimed the CRA will accept a late filed election, penalties may apply, but this is unusual.
Wednesday, October 17, 2012 - 05:58PM GMT | Anonymous
Hello Steve, I filed a 45(2) election 4 yrs ago. Now that the four years have lapsed and I will continue to rent out my property, do I have to notify the CRA at all? Should I get an appraisal for my property since it will be changing from principal to rental?
Monday, October 22, 2012 - 09:11AM GMT | Steve Blazino
No, the four year rule has to do with claiming the principle residence exemption on ultimate sale, the 45(2) election deals with exempting you from the change in use rules. Upon sale you may be able to claim the principle residence exemption on this property for four extra years, as long as other conditions are met. The election does not expire after four years.
Thursday, November 01, 2012 - 06:05PM GMT | Anonymous
Hello Steve, does the rental income inclusion apply even if the principal residence is only rented for say 1 to 3 months. Thank you.
Friday, November 02, 2012 - 11:21AM GMT | Steve Blazino
Yes, as a Canadian resident you are taxed on your world wide income, regardless of duration.
Tuesday, December 11, 2012 - 12:46PM GMT | Anonymous
Hi Steve - we have just returned from a 2 and a bit year stay in the UK. During our time in the UK we rented out our house and filed the election with our tax return. We are currently living in rented accommodation and the house is still rented out. Our question is if we sell the house within the next year without returning to live there are we liable for capital gains tax?
Wednesday, December 12, 2012 - 04:44PM GMT | Steve Blazino
I am not able to answer this question without more details, but in general the principal residence exemption does not include years in which the individual was not a resident of Canada, therefore, assuming you were a non-resident in the years you were in the UK will not be eligible for the principal residence exemption.
Friday, December 14, 2012 - 09:32AM GMT | Anonymous
Hi Steve - we have rented out our principal residence for almost 2 years now and have not filed an election. That being said, I suspect that the FMV of the home has dropped since we changed usage to a rental however, I'm wondering what a person can do to get a FMV back at Jan 2011 to claim a deemed disposition. The reason I ask is that if the market has indeed dropped in that time, then we would potentially have a capital loss (we plan to sell in the new year)and we should be claiming CCA against our rental income. What can a person do to get a FMV from almost 2 years ago and is the above thinking correct?
Monday, December 17, 2012 - 09:30AM GMT | Steve Blazino
Real estate appraisers can give you an estimated value at a point in time via market comparables, I would get in touch with them and yes your thinking is correct. Claiming CCA against income is a personal decision as it is a timing issue - claim the deduction in the current year or have the net effect fall out in the year of sale as any proceeds received over the undepreciated amount of the building will be income upon sale, any shortfall a loss in the year of disposal.
Monday, January 14, 2013 - 04:17PM GMT | Anonymous
Dear Steve: My question is in regards to the interest tax deductibility of a rental property that I just recently converted from my principle residence to a rental property. A brief history, for about one year I tried unsuccessfully to sell my home and just recently agreed to lease my home. The current home (rental) has a mortgage on it, we have purchased a new home which we are now living in and would qualify as our principle residence. Because we were unable to sell our now rental home, we used portion of our line of credit to purchase our new home. My question is; can we use the interest paid on our mortgage and interest paid on the line of credit (secured by the rental property) as a deduction against our rental income? If we did not have the rental home we would not have this debt??? Thank You
Tuesday, January 15, 2013 - 10:04AM GMT | Steve Blazino
For interest to be deductible there needs to be link from the funds received to the income producing property. The interest paid on the mortgage on the rental property would be likely be deductible, however the interest on the funds used to purchase your residence (the LOC) would not be as this is a personal purchase.
Tuesday, January 15, 2013 - 10:25AM GMT | Anonymous
Hi there. In the fall of 2008 my husband and I bought a condo and lived in it until the fall of 2011, at which time we relocated to a new city 3 hours away due to change in jobs. Due to family situations, and unsure whether we would return to our condo, which was based on the success of our new jobs, etc. we rented the condo out for the last 4 months of 2011 until August 2012 to an immediate family member. During this time, we ourselves were renting a house to live in our new city. We sold our condo at the end of August 2012, deciding not to return to our condo, and we continue to rent in the new city. Can you please explain how these rules would affect our situation? Thanks,
Thursday, January 17, 2013 - 04:55AM GMT | Anonymous
Dear Steve : I rented my home out for 3 years while traveling. I did not make a pre declaration and have not filed my taxes yet for the 3 years. Property values have dropped in the last 3 years so would it be a reasonable idea to claim the CCA to reduce my rental income and then also claim a terminal loss at the time I moved back in to the home 3 years later? Thanks
Thursday, January 17, 2013 - 10:19AM GMT | Steve Blazino
As you did not file the election the rules are - in 2011 you disposed of the property and reacquired it for FMV, this value is the cost of the rental. Assuming this was your principle residence up to 2011 and you never elected on another property this will result in no tax. Then in 2012 you have disposed of the property and any increase in value over and above the cost would be taxable to you, however you are able to deduct selling costs against this gain as well. It is likely that this will not create taxable income, if it does you may be able to file a late election. As this matter may not be straight forward, professional tax advice should be sought.
Thursday, January 17, 2013 - 11:09AM GMT | Steve Blazino
Yes this would be a reasonable plan because if you do owe tax in any of the previous years you will pay penalties and interest on the amounts, reducing this by CCA will help. You need to be sure that you have proof of value at the time you changed use in the property as CRA will likely need to review this.
Thursday, January 24, 2013 - 12:13PM GMT | Anonymous
Hi Steve, I purchased a condo back in 2008, say for $200K. After two years, I moved in with my boyfriend in his condo. At that time I had my condo valued, say $250K. I rented my condo out, never claiming CCA and did not file any elections. I have had a small net rental income each year. I have am now selling the condo. Say for $350K, with selling costs of $5K. My understanding is that in the year of sale I will have a capital gain of $100K ($350K less $250K). I am wondering if I need to be concerned with recapture at all. The CRA web-site seems to suggest that for CCA purposes, I need to use the lesser of cost plus half the gain at the time of change in use. If this is the case, do I also have a recapture of $25K (($200K+1/2($250K-$200K)-$250K)? Thank you.
Thursday, January 24, 2013 - 12:44PM GMT | Steve Blazino
No you will not have recapture as "recapture" is the tax term used for recovery of CCA previously taken, of which you have none. As a result you will only have a capital gain on the increase in value from the time you moved out to the time of sale, please note that selling costs reduce your gain and be sure to fill out form RC 2019 to claim the principle residence exemption to ensure you receive the maximum amount tax free as possible.
Friday, January 25, 2013 - 12:44PM GMT | Anonymous
Hi Steve, Thank you very much for the informative article. I have a few questions I was hoping you could answer for me: 1. My husband I had lived in our condo for three years before we started to rent it out 1.5 years ago. Not being aware of the Election mentioned above, we didn't file anything to CRA with our previous year tax return. Do you know what the penalty may be if we file the Election with this year tax return? 2. In the event there is no penalty or a minor one, how does it affect our last year tax return in terms of the tax paid on the rent income we declared? Will we get a refund this year? 3. How will this affect our last year and upcoming property tax that was paid in full (no discount for using the condo as a primary residence)? 4. This is probably obvious but will the 4 year status-quo that the election allows for start from the origianl date that the condo got rented from or from the year the Election was actually filed? 5. Lastly, what if we don't end up moving back to our condo at teh end of the four years? Does the benefit for filing the Election stil be in effect? If not and we must return to the condo, how long do we have to move for? Thank you very much in advance.
Monday, January 28, 2013 - 02:04AM GMT | Property for Rent in British Columbia
House valuations have lowered within the last 5 years therefore wouldn't it become a fair idea in order to assert the CCA to scale back my procurement revenue then in addition assert any airport terminal reduction back then When I transferred back again to the residence 3 years afterwards.
Monday, January 28, 2013 - 02:46PM GMT | Steve Blazino
I will answer what I can in general terms but you should be reviewing your situation with a tax expert to ensure all facts are known. An election under 45(2) can be filed late without penalty. One condition is that no CCA was taken on the property in question. This will likely have no effect on your previous returns assuming you did not pay tax on the change in use in the first place. I cannot comment on property taxes. A property can qualify as a taxpayer's principal residence for up to four taxation years during which a subsection 45(2) election remains in force, even if the housing unit is not ordinarily inhabited during those years by the taxpayer. This is only true if the election is filed. This four years does not expire after the fourth year, it is merely an allocation on the principle residence election form.
Wednesday, January 30, 2013 - 11:59AM GMT | Sarah
I have owned a home since 2001 that I rented out on and off while living there myself from 2001-2006... We moved to Rhode Island for my husbands work partway through 2006, all of 2007 and returned partway through 2008. We continued living there until buying a new home in Sep 2011. And have rented the property since. I have always claimed my income and losses, or percentages (if I was also occupying the residence). I am not aware or filing any elections or anything else. If we were to sell the house now would we have to pay taxes on Capital gains from 2001? Bought for 145,000 could sell now for 260,000 (put approx 50,000 in over the years). What could/should I do?
Wednesday, January 30, 2013 - 12:16PM GMT | Steve Blazino
Hi Sarah, my suggestion is that you need to seek professional tax advice on this, as the years you were in Rhode Island may not qualify for the exemption and you really need to assess FMV at the relevant points. There is a bit of work required on this one.
Tuesday, February 19, 2013 - 02:22PM GMT | Jen
I rent out part of my own home (which I also live in) to help pay the bills, do I have to declare that as income? I rent my garage and a bedroom out.
Thursday, February 21, 2013 - 02:55PM GMT | Farid
Hi Steve, We moved to California in 2012 and we rented out our house upon moving, since we have a non residency status , how can we benefit from this election if we decided to sell the property which is a principal for us and we have no other property own in US or Canada? Also when exactly the election should be filed. Within the first year of renting the property ! or at the time of sell?Thx
Monday, February 25, 2013 - 09:26AM GMT | Steve Blazino
Hello, if you are residing in the US the election will not be as useful to you as you cannot claim the property as your principle residence when not a resident of Canada. The election is due with your tax return in the year of the move.
Thursday, February 28, 2013 - 11:20AM GMT | Anonymous
Hi Steve - I purchased a new condo on pre-sale in 2008 (prior to start of construction). The building was completed in March 2011 and I began renting the condo out. I did this because I had secured a job out of province and moved to that province in May 2011. I did not want to move into the new condo to just move out 3 months later. My expectation was that I would return to the condo within a few years, but that is looking less likely now and will probably stay in my new city for some time. I'm planning on selling the rental condo this year after having rented it out for 2 years and counting. I made no elections in 2011 (did not know about it). Please let me know what my best option is considering I will sell the property in 2013. Thank you.
Thursday, February 28, 2013 - 06:47PM GMT | Luke
Steve, I made a bit of a mess and could use your help. I bought a bungalow in university (Dec 2007) and renovated it. I then rented out the basement, and some of the rooms on the main floor, and lived it it myself throughout my studies. I was declaring the rental income, and (I didn't know any better) the person doing my taxes put CCA against the small income I had every year. I sold the property in Jan 2012. Now looking back on my taxes and understanding it a little more, I realize that it would be my principal residence, but that I should never have declared CCA on the property. Do I pay the taxes on the income I reduced retroactively? Do I pay recapture? What would you do if you were in my shoes?
Thursday, March 07, 2013 - 12:40PM GMT | Dave
Hi Steve I moved from my principle residence 10 years ago, I had lived in it for 25 years. I bought a newer house outside the city and rented the old property for the last 10 years only claiming the rent and deducting small mortgage payment and a new roof last year which I did myself. When I moved the house was appraised at 67 thousand dollars. The house is now valued at 230 thousand dollars. I plan on selling it this year and my income will be 50 thousand dollars. What would i expect to pay to CRA in capital gains and is there a time limit as to when you sell a property after it was your principle residence? Thanks Dave
Monday, March 11, 2013 - 02:42PM GMT | Anonymous
Hello, Steve. I bought a condo in March 2009 and lived in it until March 2011, at which point I rented it out. It was my principal residence from March 2009-March 2011, however it has been rented out ever since and I have no plan to relocate into the condo. In October 2012, I bought a new house in a difference province. Do I need to make a declaration of my new home as a principal residence? Is there a benefit to making the principal residence declaration for the condo for the year and a half I wasn't living in it and it was being rented out? Do I need to file some sort of change of use paperwork for the condo now or when I sell? Thanks!
Tuesday, March 12, 2013 - 12:49PM GMT | Steve Blazino
There are no declarations to make at this point in time, the benefit of choosing which place to be your PR depends on the increase in value per year. You may still want to look at filing a late election if CCA has not been taken on the original condo to be able to chose that place as your residence for an extra four years (assuming you have been a resident of Canada during the period in question).
Tuesday, March 12, 2013 - 11:04PM GMT | Anonymous
Hi Steve, I moved into my new condo June 2005 (although it wasn't registered to my name until Jan 2006) and lived there until Jun 2010. I then moved out because I returned to school and couldn't afford it. I am planning to move back in June 2013. I only claimed rental income and expenses and no CCA. I didn't apply the principal residence subsection 45(2) election. Will there be any capital gains consequences when I sell? Would I have different tax consequences if I sell in 2013 vs. 2014? thanks
Friday, March 15, 2013 - 03:21PM GMT | Steve Blazino
There will actually be taxes owing when you move back into the residence assuming there is an increase in value from the day you left until the day you returned to the condo. This can be circumvented until ultimate sale if a 45(3) election is filed. I would suggest filing a late 45(2) election to be able to claim 4 extra years as your principle residence.
Sunday, March 17, 2013 - 10:07AM GMT | Anonymous
Hi Steve, I moved in my new house in 2007 then left Canada in 2009 for an employment opportunity out of the country. I have been renting out my house since I left as I wouldn't be able to afford the house mortgage and house rent in my new location. I first filed the 2009 tax as resident then found out I would have been better off filing as NR. My NR application was accepted in 2010, although I have no plan on selling my house in Canada for the next 6 years (as I really don't know if I will move back by then), do I need to file T1161 and also deemed disposition T1243 and T2061A election of deemed disposition? Another thing is, CRA penalized me for not filing the T1161 when I left Canada. Is there a way to get an exemption on this? If there is, where should I send my request to? Millions thanks.
Sunday, March 17, 2013 - 09:02PM GMT | Harry
Hi Steve. Thank you for the excellent information! I have one question for you. I have lived away from my primary residence for 6 years due to employment reasons. The residence has been rented and I filed a 45(2) election 6 years ago. This September 2012 I sold the rented house and in October 2012 I purchased a new house. Do I have to file any new elections to let CRA know of this change in principal residence? Thank you.
Sunday, March 17, 2013 - 10:36PM GMT | Sam
Dear Steve, I am planning to rent the upper floors of my house and live in the basement. I purchased and lived in this house since 2004, please let me know what will happen if I sell the house next year after one year of rental income and what are my options. Thank you in advance.
Monday, March 18, 2013 - 11:32AM GMT | Steve Blazino
This question has to do with ceasing residency, you may be able to have CRA remove the penalty under the fairness provisions, I suggest you seek professional tax advice.
Monday, March 18, 2013 - 11:33AM GMT | Steve Blazino
Hi Harry. When you claim the PRE you should file form RC 2019 in the year of sale.
Monday, March 18, 2013 - 11:35AM GMT | Steve Blazino
Hi Sam. If the rental income is incidental to your use of the house you will not have adverse tax consequences upon sale as long as no CCA is taken.
Tuesday, March 19, 2013 - 04:04PM GMT | Joe
Hi Steve, I rented out 75% of my condo for 5 months in 2009 and all of 2010 and 2011. I allocated 25% of the space as personal and claimed rental income for those years. I moved out at the beginning of 2012. Would there be capital gains consequences for the years I shared my condo with tenants? Since I haven't filed my 2012 return is it too late to file a subsection 45(2) for 2012? I didn't take any CCA deductions in any of the years. Thanks in advance
Wednesday, March 20, 2013 - 12:13AM GMT | Harry
Thank you for the answer Steve. Wondering if you meant form T2091(IND) ?
Wednesday, March 20, 2013 - 01:27PM GMT | Steve Blazino
Hi Joe. I don't think that I have enough info to answer fully as I am uncertain as to when the condo was actually purchased, assuming it was purchased before 2009 and used for personal use up to the time the tenants moved in then it appears you had a deemed disposal in 2009 of 75% of the unit at which time the 45(2) should have been filed. The rental income earned appears to be more than incidental income and therefore, the principal residence may have been converted to a rental producing asset in 2009. The fact that you are moving out now results in a change of the remaining 25%. Assuming FMV of the condo has risen significantly you should consider filing a late filed election for 2009 and I strongly recommend you seek professional tax advice to properly assess your situation.
Thursday, March 21, 2013 - 09:44PM GMT | Gina
Hi Steve :) I recently had to place my father into a nursing home. The home he lived in prior is joint tenant (right of survivorship) with myself. He put me on the title in 2010. It was his principal residence, not mine. I am currently doing all of the repairs and upgrades to bring it up to standards. As it was difficult to do extensive maintenance to the home while he lived in it. I am his legal guardian now. I am thinking of renting out the home. But I am not sure tax wise if I should be renting or selling the home. Do you have any advise for me when considering my options?
Friday, March 22, 2013 - 10:31AM GMT | Wind in the Willows
Hi: Excellent blog you have here! My question: I rented out my house in Toronto two years ago, came to live in B.C. to help look after my elderly parents, and live rent-free in their home. I claimed CCA for my house rental. I am now preparing to sell my house in TOronto, but of course would like to avoid Capital Gains Tax issues. Can I get a PRE designation, based on compassionate care issues ( my Mom is an invalid and both parents are in their 80s, and could not live alone without me here with them) , or do I have to refund the CCA ? Thanks a lot, WITW
Tuesday, March 26, 2013 - 03:29PM GMT | Steve Blazino
Hi Gina. The question of renting or selling is really a personal one, do you want to be a landlord, do you think you will earn more by renting it out and having the property (hopefully) appreciate in value, can you use the money now to pay down debt...... So, from a tax perspective if you sell it you personally will pay tax on the gain from 2010 FMV on-ward, your father's 50% interest will be tax-free up to the year he moved out. Hope this helps.
Tuesday, March 26, 2013 - 03:30PM GMT | Steve Blazino
Hi - the fact that you began taking CCA means that you changed the property from a personal residence to rental, it is not determinant on why the change. When you sell the property (assuming for a gain) the CCA taken will be 'recaptured' as income and any increase in value from the time you moved out until the time you sold the property will be taxed as a capital gain, I strongly urge you to fill out form T2091 in year of sale.
Wednesday, March 27, 2013 - 10:43AM GMT | Ganesh
Hi, I tried selling my house for 6 months and couldn't sell it. Since I had close the new home purchase, I leased the older home for 9 months ending Jan 2013. I subsequently sold the home in Feb 2013. So from a tax point of view, 1. To shelter the gain ..is it thro' filling out T2091? But I find it has all information prior to 1994 and so on. 2. Is this the form that also has PRE? 3. Does an MLS listing sufficient proof as a FMV? 4. When I calculate the gain for 2013 when I actually sold the home, how does realtor commission affect? should it be removed both from the FMV (now the new cost) and the selling price? 5. I also don't understand when I read that the T2091 need be filed but kept with me. I will really for your input. Also does MNP handle individual tax returns as this? Regards, Ganesh
Thursday, March 28, 2013 - 08:44PM GMT | Sam
Hi Steve, My friend and I purchased a house in 2010 June and I planned to stay their. But due to my wife's employment and daughter's schooling did not stay a single day. My friend left Canada. We rented it from Sep 2010 to Feb 2013 and sold it in Mar 2013. We filed the income as rental income in our tax return and did not claim CCA. Did not file any election. Can I get principal residence exemption on capital gains. Thank you Sam
Monday, April 01, 2013 - 08:05AM GMT | Steve
Hi Steve, my current situation is that I am currently renting out my home and have been doing so for approximately 15months now. This is actually costing me money every month, as the rent doesn't cover the expenses. We have just purchased a second home and plan on renting this out soon too. We have been talking to a friend and we may want to start a rental property business together. He already has a rental property and is incorporated. My question is how should I deal with my current rental property as I am planning on selling it and what should I take in to consideration based on what my plans may be. Thanks for your time. Steve
Monday, April 01, 2013 - 10:34AM GMT | Anonymous
Hi Steve, where can this Form RC 2019 be found? I looked on the CRA website and there was no such thing.
Wednesday, April 03, 2013 - 11:30AM GMT | Steve Blazino
Hi Sam - no you cannot as you did not ordinarily reside there.
Wednesday, April 03, 2013 - 11:31AM GMT | Steve Blazino
You are currently in the rental business as you have two rental units at this time. Your plan on selling is really a business decision that is outside of the change in use rules as you did not reside in this rental unit.
Wednesday, April 03, 2013 - 11:32AM GMT | Steve Blazino
Hi Ganesh - Yes, it is form T2091 which is to be filled in for the PRE. Assuming your change in use took place in 2012 then there is really no need to file anything at this point. The PRE rules allows you an extra year to claim as an exemption and as a result, the sale in 2013 should not result in any tax owing. If the change in use occurs in 2011 then you will be taxed on the increase in value from the time of change until sale, the commissions do reduce the gain. As for FMV, an MLS listing helps but it is not a true determination of FMV but an appraisal is. And lastly, yes MNP can handle this type of return.
Wednesday, April 03, 2013 - 11:34AM GMT | Steve Blazino
Try searching "T2091". Sorry for the confusion, this has since been revised in the post.
Wednesday, April 10, 2013 - 01:40AM GMT | Bill
Hi Steve, we have been living and working abroad for several years. We retained our family home with adult, non dependant children caretaking it for us. During part of the time they were university students. We are now told that when we sell part of the gain is liable to capital gains tax. We have not been renting it for income. Does the fact our family has been living there influence the capital gains position? Thanks Bill
Wednesday, April 10, 2013 - 05:19PM GMT | Scott
Hi Steve, I bought a condo 3 years ago, and lived in it until about 1.5 years ago when I had to move elsewhere for a job. Since then I have been renting where my new job is and renting out my condo. On last year's return I claimed the income on the rental, but not the CCA, however, I didn't change the status of the property. Speaking with the CRA, they suggested I would have to pay a $1200 late claim fee to make the status change, or I could not change the status and just wait to pay the capital gains upon sale. I don't expect to be moving back to the condo for years now, as I'm likely to stay elsewhere. Do I have to claim a change in status? What are my options at this point? From my understanding, regardless of the change in status I will have to pay capital gains on the property at time of sale (assuming I continue renting it out). Also, how would the personal residence exemption factor into this?
Sunday, April 14, 2013 - 04:09PM GMT | Marek
Hello Steve, I have read your blog and really apreciate all the time you put in to it! I have a select question that might of been already answered however i would like to hear your reply. I bought a condo in June 2008 at 181k and used it as my PR untill June 2011 (the FMV in 2001 was 220K) then I have rented it out for $1100 per month and had to rent larger unit for myself for $1600 per month untill now I am putting my condo for sale and will sell it for 230K do I have to pay tax and how much? ididnt claim anything as a rental property since i thought that I was paying more for mey rental expences than rental gain from the property. what are your best sugestions? Thank you for your time Marek
Monday, April 15, 2013 - 02:48PM GMT | Steve Blazino
Hi Bill. In order for the residence to qualify for the exemption one of the criteria is that the housing unit is ordinarily inhabited by the taxpayer, the taxpayer's spouse or child of the taxpayer.
Monday, April 15, 2013 - 02:49PM GMT | Steve Blazino
Hi Scott. Whether you claim it or not, you do have a change in use and therefore a deemed disposal at the time you started renting it out. Any gain at that point would likely be non-taxable assuming the property qualified as your principle residence. Since you are currently renting I would suggest filing a late-filed election which will allow you an extra four years of exemption, there is a $100 per month penalty on late filing but this can be waived in certain circumstances.
Monday, April 15, 2013 - 10:52PM GMT | Anonymous
I will soon be marrying and need to sell my house. My home is paid for and I paid $197,000 in 2008. I also added improvements to the tune of about $60,000. The market value today is around $200,000. I was thinking of converting it to a rental to be able to take the loss but was wondering if there is time limit that it must be rented before I can sell? It has been my primary residence the time of purchase. Thank you for your imput and time.
Tuesday, April 16, 2013 - 12:59PM GMT | Steve Blazino
House valuations have lowered within the last 5 years therefore wouldn't it become a fair idea in order to assert the CCA to scale back my procurement revenue then in addition assert any airport terminal reduction back then When I transferred back again to the residence 3 years afterwards.
Wednesday, April 17, 2013 - 10:25PM GMT | Ahmed Haq
Hi Steve, I bought a townhouse as I was supposed to get married but the marriage was called off. I lived in the townhouse for 3.5 months late 2012 and then began renting it out and moved with my parents as I starting feeling lonely. I already have one other rental property but I did not stay there so on sale I will be paying tax on the full gain. For this house however since my intent was to live and i actually stayed for 3 months I think I can claim as principal residence. I plan to file the election with my return now - my question is if I move back to the house in 2 - 3 ie when I am married and them sell the house an year after, will I get principal residence exemption for the whole ownership period or just the time I stayed? Thanks for your advice.
Friday, April 19, 2013 - 11:55AM GMT | Liz
Hi Steve, i've been renting out our other home 2010 and 2011... we lived ther since 2005... I filed rental income for both years no claim for CCA... we've decided to move back Sept 2011 as it was hard to find a renter for the place...I didn't know about anything about filing an election for Subsection 45(2)... I just sold my home last April 2012... do i need to file for capital gains or can I get a PRE for this... if so how... thanks...
Friday, April 19, 2013 - 02:21PM GMT | Joan
I took an new job 500km away from my home starting July 3 2012. I have a contract in place with a couple for a Lease with an Option to Buy my original house along with 13 acres starting July 16, 2012, with the option to be exercised by July 1, 2013. I would still own the other 147 acres. I purchased a house at my new locale July 20, 2012. I am unsure how I should handle this regarding Principal Residence until the option is exercised. I do expect that the option to buy will be exercised by the couple. I am hoping you can give me some direction! Thank you in advance.
Sunday, April 21, 2013 - 03:27AM GMT | Burnaby Joe
Hi Steve...Great article. Like everyone else here, I am not a tax expert, so I hope you can help me here. My wife and I bought our PR in 2003 for $320,000. In 2008 we took some of the equity of our home and bought and moved into another home (our new PR), then rented out our first home. We had our first home assessed in 2008 for $625,000. We were now thinking about selling it for $750,000. What tax gain would we be looking at? $430,000 or $125,000? Thanks Burnaby Joe
Monday, April 22, 2013 - 04:57PM GMT | Steve Blazino
Hi Joan. I think I would file the election to allow for the +4 year rule just in case you need it, you never know what may occur.
Monday, April 22, 2013 - 04:57PM GMT | Steve Blazino
Hi Burnaby Joe. Assuming that the from 2003 - 2008 you had no other principle residence exemption filed, then you would be paying capital gains tax on the increase in value from the time you stopped residing in the home, $125,000, you would also be paying tax on any recapture of CCA that you may have taken.
Monday, April 22, 2013 - 04:59PM GMT | Steve Blazino
Hi Liz. You would owe tax on the appreciation of value (if any) from the time you moved out until the time you moved back in, however the PRE form has a +1 year rule so you should be covered.
Monday, April 22, 2013 - 04:59PM GMT | Steve Blazino
Hi Ahmed. Assuming you do file the election then I would say yes that you would get the PRE based on the +4 year rule on filing the election.
Wednesday, May 08, 2013 - 05:52PM GMT | Nathan
Hello Steve, Thanks for all the time you put into this excellent blog. My case adds a twist to the scenario you describe in the original July 2011 post: I left my home municipality in Ontario in the summer of 2012 and now live in Europe. CRA has designated me and my wife as "non-residents" from August 2012 onwards. We are renting out our Ontario home during our absence and are planning to return to live there in two or three years. I have already filed my section 216 for the rental income in 2012, along with the regular general return for the Canadian income I earned before leaving Canada. All is well on that front. However, it is now past April 30th (my filing deadline), and I'm just cluing in to the fact that I may have to file a T1161 form ("list of properties by and emigrant of Canada") and maybe (according to your advice in this exchange) some other forms too... Any information and advice would be very helpful to me, and I bet I'm not the only recent non-resident out there scratching my head about this! Thank you.
Tuesday, May 14, 2013 - 02:19PM GMT | Steve Blazino
Hi Nathan, You are correct! You do need to file the form T1161 which lists the fair market value of all the properties you owned when you left Canada that was more than $25,000. This does not include things such as registered accounts, cash etc. Form T1243 also may need to be filed depending on the assets owned at departure. There are large penalties for not filing these forms, so I suggest you seek professional advice ASAP.
Tuesday, May 14, 2013 - 03:42PM GMT | Don
Hi Steve, I have a question regarding a scenario where my corporation (consulting services, not at this time a holding company) would like to purchase what was my principal residence for the past 7 years, with the intent of developing it into a vacation rental property. The primary reason for this is we are purchasing a new home to live in as our principal residence, but do not want to sell our current property as it is ideally suited as a vacation rental. If operating the vacation rental property under our corporation we could then claim the operating costs as corporation expenses. This keeps our rental property arms length from our personal income as well, as my current salary puts me in the highest tax bracket. In summary, 1) Can my consulting corporation (50/50 shareholder owned b/w self & spouse) purchase the property at FMV, to realize the personal tax benefit PRE exemption on the residence? 2) Would CRA rule this as an avoidance transaction, even thought the primary purpose of the transaction is to operate a bona-fide vacation rental business? 3) Do I also need to restructure and/or develop a holding company division of my existing consulting corporation? Thanks in advance for your insights.
Monday, May 20, 2013 - 08:11AM GMT | Mirjana
Hi Steve, We had house in Milton, my husband was working in downtown Toronto. 2006: that year we purchased 2 pre-const. condo in Toronto (why? long story to explain here) 2007: my husband lost Toronto job and got one in Montreal. We sold Milton house and rent place there. Jan 2009: was occupancy on condo #1. We move there to have primary residence in ON for tax purpose. My husband was still in rental place in Montreal. Jan 2010: was occupancy on condo #2. After a month (February 2010) my husband turned 65 and retired. He moved to condo #2 and we start selling condo #1. August 2010 we sold condo #1 and capital gain was around $40.000. We still live in condo #2, but we are renting it for several months while we are on vocation. When CRA contacted us we realize that we did not know about capital gain, did not report rental income, did not know about filing elections or so on. Can we do anything now to make it right? Thanks!
Wednesday, May 22, 2013 - 09:41AM GMT | Anonymous
Hi Steve, I have an interesting case for you. When my home was purchased (2002), it was rented out and I elected it as my principal residence until 4 years later when I moved in (2006)(I still rented out a portion of it). After 2 years (2008)I moved out (into a friends rental) and rented it out again. And then moved back in 2011 until present (still renting out a portion). Can this election be made more than once? And will I have to pay capital gains if I choose to dispose of the property at some point on the appreciation during my absence or on the portion that remained rented out if I have not claimed any CCA but DID claim proportionate operating expenses against the income. Thanks very much, Great Blog! -Z
Wednesday, May 22, 2013 - 09:42AM GMT | Anonymous
Hi Steve, I have an interesting case for you. When my home was purchased (2002), it was rented out and I elected it as my principal residence until 4 years later when I moved in (2006)(I still rented out a portion of it). After 2 years (2008)I moved out (into a friends rental) and rented it out again. And then moved back in 2011 until present (still renting out a portion). Can this election be made more than once? And will I have to pay capital gains if I choose to dispose of the property at some point on the appreciation during my absence or on the portion that remained rented out if I have not claimed any CCA but DID claim proportionate operating expenses against the income. Thanks very much, Great Blog! -Z
Friday, June 07, 2013 - 07:29PM GMT | Ariel
Hi Steve, I purchased a condo in 2007 , however didn't live there as much since my job was on the other side of the city . I stayed in a rented apartament for myself , and my parents and brother used the condo if in Canada . I did not rent to anyone and did not gain any rental income. I married and moved in with my husband. Later I tried to sell but issues with the building, so now we are thinking to try selling it again . My question is will I be taxed on capital gains from the sale, or could the condo be a principal residence and for how many years? Thank you kindly! Ariel
Wednesday, June 12, 2013 - 03:09PM GMT | Barry
Hi Steve, We bought and moved to a new personal residence on Nov. 1, 2012 and put our previous home up for sale. We expected a longer time to sell and rented the property to an acquaintance with a 30 day notice to vacate while we tried to sell it. We now have a firm sale for Sept. 1, 2013 and our "tenant" will be vacating. Some questions; - How long do I have to have rented the initial home for it to qualify for a rental property? - We have a bank appraisal for approx. $1.4M from 2012 but we were only able to sell for $1.2M. Is there any way to claim a capital loss on the sale and offset a sizeable CNIL balance I'm carrying? I've only seen references to a terminal loss on rental property in my research but I'm not sure I understand the difference. Thanks, Barry
Wednesday, June 12, 2013 - 03:25PM GMT | Barry
Hi Steve, We bought and moved to a new personal residence on Nov. 1, 2012 and put our previous home up for sale. We expected a longer time to sell and rented the property to an acquaintance with a 30 day notice to vacate while we tried to sell it. We now have a firm sale for Sept. 1, 2013 and our "tenant" will be vacating. Some questions; - How long do I have to have rented the initial home for it to qualify for a rental property? - We have a bank appraisal for approx. $1.4M from 2012 but we were only able to sell for $1.2M. Is there any way to claim a capital loss on the sale and offset a sizeable CNIL balance I'm carrying? I've only seen references to a terminal loss on rental property in my research but I'm not sure I understand the difference. Thanks, Barry
Wednesday, June 12, 2013 - 10:38PM GMT | Anonymous
Hi Steve, We have been living in the current house for 15 years and we bought it by cash(never had mortgage). And now we are planning to take some money (as form of mortgage) from this house as down payment for the new house we are building and rent out the old house after we move into the new house. Is there any steps we need to do so that the interest of the mortgage can be tax deductible against the rental income? Someone suggest me to set up a holding company and to sell the old house to the holding company. Then the interest will be deductible. However setting up a holding company just for one property, I am not sure it makes financial sense. Can you give me some suggestions? Thank you very much.
Wednesday, June 12, 2013 - 10:42PM GMT | Anonymous
Hi Steve, We have been living in the current house for 15 years and we bought it by cash(never had mortgage). And now we are planning to take some money (as form of mortgage) from this house as down payment for the new house we are building and rent out the old house after we move into the new house. Is there any steps we need to do so that the interest of the mortgage can be tax deductible against the rental income? Someone suggest me to set up a holding company and to sell the old house to the holding company. Then the interest will be deductible. However setting up a holding company just for one property, I am not sure it makes financial sense. Can you give me some suggestions? Thank you very much.
Tuesday, June 18, 2013 - 12:47AM GMT | Anonymous
Hi - I moved out of my home in 2004 and filed a s. 45(2) election. I rented out the house for 3 years while I was a deemed resident of Canada. In 2007, I bought a new home in Canada that I currently live in (and will claim as my principal residence when I sell it). I assumed the s. 45(2) election would end when I purchased a new home. In 2009, I realized this might not be the case and I wrote a letter to Revenue Canada asking if I could end the election as of 2007 - I received no response. When did my s. 45(2) election end? Do I need to do anything else to recsind the election? What date do I use to calculate the cost basis of the house when I sell? I have never deducted CCA on the property but plan to deduct capital costs when I sell the property. Thanks,
Saturday, July 20, 2013 - 07:45AM GMT | Steve Blazino
Hi Don, sorry for the delay in replying. In short, yes this can be done but some words of caution - rental income income is actually taxed a little higher in a corp than personally, you need to watch out for personal use of a corporate asset and need to be sure you understand the HST implications of short term rental arrangements. You would not need to restructure your current corporation but should also ensure you get proper advice on having assets in an active corporation which could be attacked by creditors.
Saturday, July 20, 2013 - 07:47AM GMT | Steve Blazino
Hi Mijana, unfortunately your situation requires a little more analysis than this blog allows for, I do sugget you conact a tax professional for help, hopefully an MNP tax specialist. We can help you here in Thunder Bay if you choose.
Saturday, July 20, 2013 - 07:52AM GMT | Steve Blazino
Hi Ariel, sorry for the delay in replying. Given the facts as layed out I don't think the principal residence exemption applies as you never 'ordinarily resided' in the condo and therefore, yes you would be taxed on the gain. Please remember that the original cost is increased for legal fees on the purchase and land transfer tax and the proceeds are reduced for legal fees, commissions paid....
Saturday, July 20, 2013 - 07:56AM GMT | Steve Blazino
Hi Barry, any rental income earned is taxable regardless of the length of the rental period. If there was a true decline in market value from the time you moved out until sale then it is possible to have a loss on the sale, however given the short time from date of moving out and sale date I think it is safe to say the appraisal was a little high and would be difficult to claim the loss. A CNIL balance occurs when investment expenses outweigh investment income, a terminal loss is a loss on a depreciable asset (building) where proceeds on disposal are less than the undepreciated cost.
Saturday, July 20, 2013 - 08:03AM GMT | Steve Blazino
Anonymus - June 12/13 - Hello, I agree that setting up a holding company does not make sense, especially for one rental property. Interest is deductible when there is a direct link from the borrowing to the income earning asset, I do suggest you talk to a tax expert on this issue.
Saturday, July 20, 2013 - 08:08AM GMT | Steve Blazino
Anonymous - June 18/13 - hello, your election stays in effect until you elect out of it but I am uncertain as to why you would want/need to do this at this time. I assume the cost basis question is in respect of the rental unit, the cost basis used is the FMV on the date the change in use occurred from principal residence to rental, as long as you were resident in Canada in the years in question you will be able to use your principa residence exemption on the gain for up to four extra years on the rental property, however, this reduces the years you can use on your current residence.
Thursday, July 25, 2013 - 08:29AM GMT | Anonymous
Hi Steve, My parents purchased a residential property last year. However, we are having difficulty paying its mortgage, and thinking of renting it out. What are the exact tax circumstances for the mortgage interest, and rental income if we were to rent it out. Thank you!
Thursday, July 25, 2013 - 10:16AM GMT | Anonymous
I currently rent out a suite in my house that I bought 20 years ago. I claimed all revenue, but never capitalized or depreciated any expenses. I will now renting out the main floor and will be renting closer to work - perhaps 20 KM closer but in terms of travel time it is significant. I at some point plan to move back to my residence. Question - do I need to file an election to keep this home as my PR in this case? Or does it matter? Obviously it is possible I might sell (either while I'm renting or perhaps after I move back in a couple of years) so want to handle this correctly to avoid paying CG whenever I do sell. Thanks!
Tuesday, July 30, 2013 - 08:08AM GMT | Anonymous
Hi Steve, When a property changes in use from rental to personal and a 45(3) election is filed could you clarify what the election actually does? I know it delays the capital gain but does this election contain the actual plus four exemption?
Tuesday, July 30, 2013 - 08:15AM GMT | Steve Blazino
The rental income is taxable to them and the interest on the mortgage is deductible against that interest
Tuesday, July 30, 2013 - 08:16AM GMT | Steve Blazino
Yes, you should be filing the election not only for preservation of the PRE for up to four more years.
Monday, August 19, 2013 - 08:51AM GMT | M.M.
Hi Steve, I am so happy to have found this blog and your comments about renting out one's principal residence. I am planning to rent out my principal residence this winter in order to do some traveling. Can I deduct my daily rental expenses such as short-term apartments, hotel rooms, and the like against the rental income? I do plan to deduct other expenses such as the utilities which I will continue to pay, property taxes, house insurance, and the like. As you have suggested to others, am I correct in assuming I also have to file the election to which you refer?
Wednesday, August 28, 2013 - 10:53PM GMT | Kent
Hello Steve, I currently reside in a home in which I rent out the basement suite. I would like buy a rental property but at 20% down many desirable properties seem outside my current downpayment range. However, I could afford to pay 5% down then take over the new property as my principle residence and rent both suites in my current residence. Do you see any impediments to me doing this? Also, how long would I have to wait to return to my current residence if I eventually wanted to rent out the newly purchased one and what would the tax implications be? Thnk you for your assistance.
Sunday, September 08, 2013 - 04:21AM GMT | Anonymous
Hi Steve, We had rented our PR for 1 years and 11 months as we had to relocate to a different city for employement/studies and rented a condo. Again due to employement we sold our property. I have filled the rental income for last two years with CRA and have claimed mortgage interest and property taxes as expenses. I was not aware of how the taxes work nor filled for an election (hearing this for the first time) and wondering how to claim the gain I made after selling house as capital gain exemption when I file taxes for 2013. Also, we held position of the property for 3 years and 11 months prior to selling it. Please advice
Tuesday, October 01, 2013 - 06:26AM GMT | James
Hi Steve. Thank you for your time and informative website. I own a condo which I lived in from 2004-2010. In 2010 I both became disabled and moved in with my now wife who owns our current home on title. We each own 1 home on title at this time as principal residence and each acquired them before marrying. At the time when I rented out the condo, I wasn't sure if I would be back there and it was mainly due to the financial impact of disability that I moved out rather than being an income generator. As it turns out I will not likely be back for many years however at this time, we anticipate keeping the condo for 25 or more years and perhaps living there in our old age. I have not filed any PRE or filed taxes for the past 4 years as being disabled, I could no longer work and had no other income. I am wondering if CCA can or should be claimed for the past 4 years or if any paperwork should be filed. I had it valued before renting it out. The condo has not increased substantially since becoming a rental however it has increased by about 300K since original purchase was made. I appreciate your input.
Thursday, October 24, 2013 - 07:08PM GMT | Shahid Salam
Good advice Steve. Between 2002 and 2013 I had two properties. One, I lived in from 2002 to 2011 ( principal residence ) and the 2nd was on rent. In 2011, I rented the first and moved to the second. Now I have a closing on Nov. 1 of the first property. I have received advice giving me two options: a) 9 years + 1 year; 10/11 x 50% of the gain or b) Net Sale proceeds minus FMV at time of change in 2011 is the gain and then 50% of that. With the proceeds from the sale of the first property I have purchased another property. So, I still have two properties, one rented and the other my residence. At over 70, I don't have the energy for any more moving. I did not claim any CCA. The extra 4 year election will it help; a) can I elect now, 2 years later? b)does it really matter in my case because I am low income and any gain is not going to draw any tax. Yet I'd like to follow the law. Thanks
Thursday, December 05, 2013 - 09:14AM GMT | Marty
Steve, I would like to hear your thoughts on this situation. A friend has owned his principle residence for over 25 years. Fifteen years ago they purchased a second home at the shore. Now retired, they are considering living in the second home more than the original one. If they were ever to sell one, although unlikely, it would be their original principle residence. Neither property has ever been rented, nor will either ever be rented. The question is can he somehow designate the. Second home as his principle Residence, thus moving the potential gain protection to the second home, without actually selling it. If so, would you think that would be prudent? Thanks so much for all of your continued insight!
Friday, December 06, 2013 - 10:02AM GMT | Robert Loehr
Good blog. Very informative. I have a somewhat related question. I have a house that met the principal residence requirements while I lived in it in a Nunavut community. However, I have accepted work in second Nunavut community but kept the house. It is vacant and I do return on occasion to do maintenance work on the house. I rent an apartment in the new community and since all Nunavut communities are in the northern residence prescribed zone, I claim the northern residence deduction for the residence in the new community. Does the claiming of the northern residence deduction for the rented accommodation in the new community preclude the retention of the house status as a principle residence after I moved to the second community?
Tuesday, December 17, 2013 - 12:01PM GMT | Melissa
Dear Steve, I have a question regarding taxes and fairness. I own my own condo which has been my primary residence for 8 years. I have just moved into my boyfriend's condo in order to rent my condo out for our travels this year. My intention is to move back to my condo within the year. My condo is easier to rent than his. Here is my question: if I collect $1200 for my furnished condo and pay him half of the income then am I solely responsible for paying tax on the entire $1200? When I share half the money? What are the tax implications and could we divide tax responsibilities? Thank you in advance.
Wednesday, January 22, 2014 - 09:09AM GMT | Anonymous
Hi Steve. Informative article. Thanks for writing it! I have a rather unique situation and have asked for tax advice before but I've always got a "I'm not 100% sure so ask someone else type of answer" (I've consulted with CRA, and several professional tax companies)My husband has a mortgage on a home. As of December 2013 we started renting it out to my parents at less than FMV (less than our mortgage payment)And they are paying the utilities on the home as well, while we still pay for insurance. We moved into his parents home and are prepping their home for sale and we are going to be purchasing a larger home together this year due to the fact we will need to take care of his parents due to medical issues. If you need more info on our tax situation (not sure how relevant this would be) He is on parental leave until April, has a FT job, and runs a service based business after hours. I have just started a PT job, and do his bookkeeping. How do I file for this? What are our responsibilities? I can't seem to find answers so I really hope you can shed some light on this. We are stretched very thin at the moment! Any advice would be appreciated, thanks again.
Wednesday, January 29, 2014 - 10:35AM GMT | sophia
Hi, Steve, I am in a difficult situation here. I bought a house in the states and lived there for four years before I moved back to Canada in 2011. From 2011 to 2013 I rented the house out. Then I sold the house last year. I did not know the Subsection 45(2), so no eletion was filed with my 2011 return. To make things worse, I claimed CCA in 2012 (This is the only year I claimed CCA.) Now I seem to have two options try to solve the problem (I am not sure how much hope there is): 1. Write a letter to CRA asking if I could make a late Subsection 45(2) election. At the same time, I tell CRA that I will adjust the CCA I claimed in 2012 and pay tax owed. 2. File the T1 adjustment for CCA claied first and then ask if I could make a late Subsection 45(2)election. Which one do you think is better? Thanks very much for your help
Saturday, February 01, 2014 - 12:41PM GMT | Dan
Hi Steve I was so relieved to find your article as there is very little out there on this topic. We plan to start renting out our principle residence this year, and for two years house sit at my inlaws who will be out of the country. So in a nutshell, all we have to do is file this exemption this year when we move, claim the rental income on our income tax for the next two years, and then move back into our home? No further tax consequences when we move back into our principle residence two years from now? Do we need to claim a FMV when we do move out this year, will that help us in a rising real estate market if we do decide to sell our home after we move back in two years from now? Thanks for all your help, great post!
Tuesday, February 04, 2014 - 09:46AM GMT | Anonymous
Hi Steve, We have a second home we purchased in 2012 with the intent of fixing it up and eventually renting it. We allowed our grown daughter to live there rent free during the renovations and she moved out in November 2013. We searched for a tenant beginning Dec 1, but did not locate one until Jan 2014. Therefore, if I understand correctly, the house was used for "personal use" for 11 months of the year, and 1 month it was "available for rent." Are we able to depreciate our expenses, and deduct 1 month of interest as a loss? Or do we have to wait until Tax year 2014 to begin depreciation since there was no income on the house during 2013. ? I assume the interest could be deducted on Schedule A if we are not allowed to deduct it as a rental expense, but it would be more beneficial to take the loss. Are we allowed to write off ANY losses if it was used for personal (family) use 11 months of the year with no rental income? Thank you for helping me navigate!
Saturday, February 15, 2014 - 07:50PM GMT | Anonymous
Hi Steve. Love your site! I live in BC and have been renting out the upper floor in my house for a number of years in my prinicpal residence. Have been declaring all revenue and associated expenses (30%) plus I have a home business that I claim another 10% in expenses. There has never been any CCA claimed. The last two months of 2013, I rented out my first floor suite where I normally resided. It is a horse acreage and the new tenant moved in with her assorted animals and in the meantime am renting a house closer in to town and to my work. (probably only 20 km. I have two questions. Do you think I can claim the rental expense I have in my new house against rent revenue on my principal residence? Seems logical as I am legitimately incurring this "business" expense in order to rent out my residence. I am about 1k cash flow positive in this situation (and I have long paid off my mortgage) so am looking for any legitimate expenses. Second question, Does this FMV rule (if I file for the election) become more complex due to my rental revenue history or is not not an issue? Thank you.
Monday, February 24, 2014 - 08:20AM GMT | pryce wood
Hi Steve, I have question for you. My wife is getting a job in the United states. We own a duplex together. The question i have is, can we keep the duplex and live in the USA, and not have to pay canadian income tax on her American income. I work online and i could transfer ownership to me only, and i am fine to pay tax on my canadian income and my rental income, but because we are married, will she have to pay canadian taxes if our principal residence is in the US because of our ties to canada and reciprocal tax agreements?
Tuesday, February 25, 2014 - 08:13PM GMT | James Kelley
I purchased a home for $30,000 in 1972. It was my principle residence until 2001. I did not sell the house until 2013. I did not receive any rents over this time period. My daughter obtained a divorce about that time. Her and her two children needed some place to live. I just let them move in rather than move in with my wife and me. She paid no taxes, no insurance, no up keep. Basically they just lived there 13 years for nothing. Recently she was married and moved out. I had some work done on the house, and then sold it for $115,000. What is my tax situation? Thanks
Tuesday, March 04, 2014 - 11:18AM GMT | Jordan
Hi Steve, great article, this and some of the comments are helping us figure our situation out, and I'm hoping you can provide us some suggestions: I bought a condo in April 2006, taking advantage of the HBP, with the intention of living there. I accepted a job shortly after initiating the purchase of the condo, which required I move to a different city. I did however occupy the condo for a short time before leaving to start my contract. The apartment was rented out during my absence, and I filed rental income but no CCA for the years it was rented (2006 - 2011). One job contract led to another, and eventually I also pursued graduate studies abroad. I did not return to my city until April 2011. I moved into the condo. We lived in the condo from April 2011 until November 2012, when we bought a house. We tried selling the condo ourselves, but without success. We believed we would have better luck in the Spring, so rented the apartment again for a 6 month lease. We successfully sold the apartment in the summer of 2013 just after the tenant left. There is another important detail: in June 2009, CRA reviewed my eligibility for the HBP, because the condo was rented out around the same time of purchase, and wanted proof it was my primary residence. By March 2010, the situation was sorted out and CRA confirmed I was eligible for the HBP and reassessed previous years tax notices to be the same as they had before their review. I did not know about some of the details of changing the use of property or about the elections until this year, as I'm trying to figure out how the capital gain applies to our situation. Can you suggest the best approach to take in our circumstances?
Sunday, March 09, 2014 - 10:19PM GMT | David Smyth
Steve, I don't want to wait until I am too old to realise the tax free advantages of my mortgage free house. I have the cash in my Professional Corporation but would take a big hit taking it out. In Alberta, can I get the house professionally appraised and then have my Prof. Corp. purchase the house? Then I could rent the house from the Prof Corp and use the tax free money on the house at my discretion. I could then depreciate the house in the Prof Corp and get it to pay for repairs and maintenance at Pre-tax dollars? Thoughts? Thank you
Sunday, March 09, 2014 - 10:23PM GMT | Jon
Steve, thank you for this very informative blog. I am a non-resident of Canada and have been filing canadian income tax electing under section 216 for my condo since relocating to the US in 2010. (The condo was purchased in 2005 and between 2005-2010 was my PR.) I just recently had a special assessment on my rental condo in Canada where the building was replacing external siding and am now wondering if it would be wise to claim this as CCA or to avoid in doing so if there are future tax implications when I sell the property either as a resident or non-resident of Canada? Any advice you can provide is greatly appreciated! Thanks in advance.
Monday, March 10, 2014 - 03:51PM GMT | Peter
Steve, Thank you for the information in the post above. My wife and I are planning to move to Switzerland for a job for 5 years. We would like to keep our home here and rent it out while we are away and return to it when we return to Canada. Can we maintain the property here and still remain non-residents for tax purposes? Thanks in advance, Peter
Wednesday, March 12, 2014 - 06:01AM GMT | Pat L
Steve, we are possibly going to Abu Dhabi for 2 year contract which includes housing. I don't want strangers living in our house in Canada and trying to figure out how to avoid the taxes and become non resident. If we engage with a property management company to look after our house for 2 years, does that show we are not returning and looks like it's rental etc? If we have two residences surely the one where we are actually living in is considered our residence?
Saturday, March 15, 2014 - 10:29PM GMT | Wc
Hi Steve, when you say claiming CCA will void the election, do you mean CCA on the rental property itself only OR CCA on any assets within the rental property? For example, can I claim CCA on a new fridge and still get PRE? Thanks
Thursday, March 20, 2014 - 10:54AM GMT | Anna
Steve, I moved from my principal residence and am now renting it. I will rent it out until the mortgage comes up for renewal in 2.5 years, and I will not move back into it. I see the rental only increasing slightly in value. Is it better to claim CCA or better to make an election to claim it as my principal residence? Does it ultimately work out to be the same tax paid in the long run? I just get the instant gratification of an annual write off by claiming CCA, instead of the gratification at the end if I claim it as my principal residence? Also, are the real estate fees (4-6%)a write off when I sell the property if claiming CCA, can't find anything in the guide? (Property is worth $500k, fees would be $25k). Thanks for your help.
Thursday, April 17, 2014 - 03:51PM GMT | OP
I'm a Canadian Citizen who got married to a US citizen last November. I left Canada to work in USA on TN-visa Status on September 2012. I haven't returned back to Canada since then. I haven't applied for GreenCard yet, but I am willing to do so soon after disposing off a property I own in GTA. In 2012, I declared 4600 as rental income on this property In 2013, I declared 20000 as rental income as property (property got out of rental agreement in October 2013). I declared US earnings as World Income for both years. By showing myself as Ontario Resident with Principal/Primary Residence still in this house. I also got a letter from CRA telling that my GST Rebate on my newly built house was approved. I'm planning on putting my property for sale in next 10 days or so. I would like your help in devising a safe and best strategy on the following: 1 - Disposing off the property to avoid Capital Gains, what should be my best approach towards it 2 - How soon after I dispose off the property, I'm safe to apply for my Greencard? - lawyer mentioned it takes 6-7 months to get the greencard in hand after applying. I am willing to apply after my property is disposed 3 - For taxes in 2014, would I be able to declare myself as Non-Immigrant without being taxed on capital gains? Please advise.
Friday, April 18, 2014 - 11:02AM GMT | Anonymous
Hi Steve, Much like the post above by Wc on March 15, 2014 10:29pm, I have a similar question. I know of someone who has a triplex, lives in one unit and rents the other two units. They purchased some appliances for the two units they rent and took CCA on it. They will likely live there for the rest of their life. Will they lose their principal exemption as a result of taking CCA? What advice can you give them to correct this issue if taking CCA will cause them to lose their exemption? Or how can they go about this to correct it. Your advice to this matter is greatly appreciated.
Saturday, April 19, 2014 - 09:40PM GMT | mike
Hi Steve, We live in a house for which we lived in for over 15 years. We decided to rent out our basement in 2008. We have not made any elections. We are not planning on switiching the basement back to normal/personal use. We have not claimed any cca on it for the period it was rented out. do i still need elect for a 45(3)? what are my options?
Monday, May 05, 2014 - 07:34PM GMT | Joseph
Hi Steve, I recently bought my first house and lived in it for a couple of weeks to clean it up and do some minor renovations. I would like to rent the whole house out for a year and live with my parents in this year before moving in next year with my wife since she is out of the country at the moment. I am very concerned whether a not I will lose my principal residence tax exemption should I choose to rent it out. Can you tell me if it is possible not to lose this exemption and if so, what should I do before renting it out? Also, if after a year, should we decide to continue renting out our basement and live on the main and upper floors, will there be any tax implications should we claim only expenses and not CCA? Hope you can help me. Thanks!
Thursday, May 22, 2014 - 12:52AM GMT | Jerry
Hi, Steve, I started renting out my proprty in November 2010 which I owned for 6 years. If I stop renting the property by October 2014 and sell it afterwards, will I be deemed as qualifying the 4 year PRE? if not, do I pay capital gain tax for the whole rental period or only the balance 1year as the rental period cross 5 taxation years? I never claim CCA and do not own any other property. thank you!
Tuesday, June 10, 2014 - 07:12PM GMT | Dave
Hi Steve, We are presently attempting to sell our principle reseidence as we had to purcahse another that was more accessible for our 20 year old. He became very ill and now required a house that had an elevator, so we purchased one that offered the space to put one in. We are now having trouble selling our first home and are considering renting it until the market picks up. Given we will be moving into another house, could you please let us know if this will cause huge taxation isuues for our family. I also grew up in Thunder Bay.
Thursday, June 19, 2014 - 05:38PM GMT | Anonymous
Hi Steve, what would happen if I move out of my primary residence for a period shorter than 4 years because of travel distance from work, and then sign a rent to own agreement with my tenants. Will I still be exempt from capital gain if the rent was just enough to cover my strata and mortgage?
Friday, June 20, 2014 - 10:10PM GMT | Robert
Hi Steve - you have made some inconsistent statements regarding the late-filing penalties, so could you please clarify? First you say CRA will accept a late-filed election if no CCA claimed….penalties may apply, but are unusual. Then you said “An election under 45(2) can be filed late without penalty.” Then in another posting you wrote "there is a $100 per month penalty on late filing but this can be waived in certain circumstances.” So what is the real scoop on these penalties? I moved out of my house 3.5 years ago and rented it out and bought another house - I didn't file the election 45(2) since the accountant forgot to advise me to do so. I'm just finding this out now. If CRA accepts my late-filed 45(2) with the $100/month penalty, that's a whopping $4200 hit! Is that what I can expect? Thanks! - Robert.
Thursday, July 24, 2014 - 07:55PM GMT | Asian Girl
Hello Steve. My husband and I have lived in our old residence for 5 years from May 2008 to November 2013. I just accepted a job to Hamilton and hastely we purchased a house out there commencing December 2013. Unable to sell our old residence in Toronto, we ended leasing it commencing December 2013. I've obtained a appraisal for the old house to be about $500K as at Dec/13 and purchased the new house for $410K in Hamilton. CRA denied me of claiming legal costs and land transfer tax totalling aprox. $10K on the purchase of the new property since the old residence was not sold. I've claimed rental activities 100% on husband's return with no CCA claim. Can I file the 45(2) election to extend the PRE on the Toronto property? At the same time, should I be filing the T2091 to designate old property as PRE? If we established that Toronto property is the PRE, then I would assume that the new residence in Hamilton would be the secondary property. We plan on selling the old property soon. Once this is done, would we have a deemed disposition on the property of the new resident as I would now designate that to be my new principal resident. If this is the case, the gain would be FMV at date of change in use less cost of $420K ($410K purchase price plus $10K of legal fees)? Do we need to fill the T2091 again in the year that old resident is sold? Your help is much appreciated
Friday, July 25, 2014 - 02:54AM GMT | Anonymous
Hi Steve, I recently bought a resale condo and I'm a first time home buyer. I purchase the condo at the time when I thought that I'll be working at a new location which was far away from where I use to live. However, I didn't change the job and now going to work from my new place is a bit of long commute. What would happen if I move out of my (condo) primary residence (after a month or so after the purchase) because of travel distance from work, and if rent a place closer to work and rent out my condo (sign an agreement with the tenants)? Would my condo still be consider my primary residence or not? Will I be exempt from capital gain if the rent was just enough to cover the mortgage and other expenses (property tax and maintenance fee)? I don't own any other property anywhere in the world.I thought even of selling my condo but it won't make any sense as I will be losing a lot of money. And at the end I don't know if I want to sale my condo at this point of time as work my take me again to that part of the city.

Add A Comment:

Anonymous
Required  
http:// (Optional)
 
Protected by FormShield
Refresh
Listen
<%=MNPPage.EnterSecurityCodeErrorText %>
  Enter the text from the image above. (Required)