My client gave his principal residence on rent last year 2019. By reading “Income Tax Folio S1-F3-C2, Principal Residence”, I understand that he needs to file an election under 45(2) to defer recognition of any capital gain by writing a letter to CRA. Now, my questions are:
Does he need to report this deemed disposition on Sch 3 for reporting purposes?
Can letter for Sec 45(2) be attached and e-filed with his personal tax return in tax cycle?
If you’re filing a 45(2) election, you DON’T report it as a disposition - that’s the whole point of 45(2). You are supposed to file the election “with” the tax return, but last time I did one, I couldn’t “attach” it to an EFILED return - I used the Submit Documents service via RAC. You can also file the election later, but then you have to include the payment for penalties on late filing.
Nezzer, didn’t think there was a specific late filing penalty for 45(2) - other than the usual $100/month - but that it would be at the CRA’s discretion to accept it?
Thanks Nezzer . I always find your answer really helpful. Now the question arises that will be there any penalties now since he is filing after June 1, 2020 deadline? Also, the payment deadlines are extended till Sep 1, 2020.
I haven’t memorized the details of the COVID-19 deferral of late filing penalties, so I’m not sure if a 45(2) election qualifies for that. Sorry - you might have to do some digging yourself. You might find some helpful info here: https://www.videotax.com/covid19
I want to submit 45(2) letter via RAC but which option should i choose? It is asking the reason for your submission. Shall i choose Change or Adjust your personal tax return?
@owais.ahmed
It seems the options have changed. I can’t remember which one I used, but I think there was another option for “other documents” which included certain elections. Looking at it now, I can’t find an option that seems appropriate. I do not think “Change or Adjust your tax return” would be appropriate. You might have to mail it. Sorry!