Converting PR to rental property

Tax Topics
21

Nezzer, first Problem is exactly who is the beneficial owner of what.
Maybe its a nullity.

22

@Nezzer Thank you for clarifying! With this option, he would do nothing in 2020 and file his PRE per the formula when ultimately sold?

@snoplowguy Thank you for that research. For the father to be the sole (beneficial) owner would be the preferred tax treatment but based on the definition you posted and my discussions with my client, it doesn’t appear that we can make that argument.

@owais.ahmed On further research I found that Budget 2019 amended 45(2) to “allow a taxpayer to elect that a deemed disposition that normally arises on a partial change in use of a property not apply”. I have not been able to find anything else that stipulates all owners must have the same tax treatment for 45(2) to apply. My plan is to file the election with father’s 2020 return and if it is not accepted then will revert to the option Nezzer suggested.

Thank you all for your contributions! I will try to remember to post an update after filed.

23

“I will try to remember to post an update after filed.”

Unfortunately you will be unable to safely/properly efile unless and until all of these three participants have provided you with quite a lot of additional written documentation.

The CRA Terms of use of Efilers include a requirement for the efiler to view/verify the documentation. According to the limited information posted here, these clients appear to have not yet given all the relevant documentation to the tax preparer. Caution should generally be exercised in cases where clients are refusing to provide the information and documentation necessary…

" Responsibilities … Ensure your client has documents (such as information slips and receipts) to support all income, deductions, and credits reported or claimed on the return. Verify the authenticity of these information slips before conducting financial transactions."
" Conditions for suspension … 12. 1. failure to ensure that a client’s source documents fully support all income, deductions, and credits reported or claimed on the return;"

.
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“filed” and “accepted” are generally other ways of saying “not yet audited” :innocent:

24

@Versa,

Yes, you’ve got it. At the bottom of the S3, you select option 2 - designate the property as principal residence for “some but not all years”. However, this option may not be available if the property is rented - you might HAVE to report the change in use (perhaps 4 years later, if the 45(2) election is filed).

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25

I have a client who will be filing the 45(2) election when filing her 2022 tax return next year. This will be my first time filing this election for a client. She has found a renter for her personal condo (she is the sole owner) starting this October and plans to return to live there after renting it for a 4 year period. She will remain a Canadian resident during this period and will not claim any other Principal Residence. She is not moving for employment, and thus we know that this election cannot be extended beyond the four years.

I have several questions:

  1. My understanding is that once the election is filed, it’s good for the 4 years. Nothing more is required during the 4 year period except filing the T776 and not claiming CCA. Correct?

  2. If her tenant terminates the lease early before the four year period ends and my client needs to find a temporary new tenant who would rent until that four year period ends, are there any ramifications if my client stays in the condo briefly while she looks for a new tenant (ie: she would need to return to the city to find a new tenant, and thus need a temporary place to stay during this process)? I’m guessing NO because rental income will still be claimed for the majority of months during that year.

  3. If my client decides to move back to her condo early, perhaps after year 3, does she have to notify CRA?

  4. We know this election can’t be extended when it is not employment based. However, if my client returns to live in her condo after this 4 year period, does the option exist to later file another 45(2) election on this same condo? This could be years later. My client hasn’t asked this question; I’m merely curiosity.

Appreciate the advice. Thank you.

26

I think that this continuance of an older discussion by @kozakworld may have been better served in its own discussion, so that confusion between the original discussion and the questions raised by the new discussion do not get confused.

Based on the limited information, and recognizing that additional facts may completely change the answers, I suggest:

  1. Yes,
  2. Not likely,
  3. Will do so anyway, because of the new address on the T1 General. If you mean specifically notify in regards to Subsection 45(2), no.
  4. Ah… this is unique.

For point 4, you are asking if a person returns to a property which an election under Subsection 45(2) has been taken, BUT YOU REFER TO THEM RETURNING AFTER the Subsection 45(2) election has run out and no continuance of the election may be taken. In that case, you are changing an Income producing property back to a principal residence. In which case, the Act has specific legal requirements when this happens and I would suggest that you read through the entire Section 45 carefully. (In part because I am NOT at the office and don’t intend to act as your search tool into the Act.) But the consequences are very clear and very much not in your client’s interest in doing so.

1 Like
27

Appreciate your comments, Tim. You are right about having this as a separate entry, whereas my thinking was to keep these similar topics together. Not sure if it is worth moving as you have answered my questions. Thank you.