Principal residence - partial rent

Tax Topics
1

Client has a condo in BC. He lived there for a few years and then rent out partially because he moved to other province for work. He intends to come back to BC soon. My question is:

  1. Does reporting rental income make CRA think property had change in use and applies deemed disposition rule?
  2. Per tax rule, deemed disposition rule applies where change in use is substantial. What is the criteria for “substantial”, 50%?

Thanks!

2

Look up the s45(2) election. They can elect to not have it be a change in use provided they don’t claim CCA on the property during the rental period. It also allows for claiming the principal residence exemption for the years the property is rented up to a maximum of 4 years. Obviously the election would prevent there from being a deemed disposition as well.

2 Likes
3

Thanks. S45(2) cannot be used for partial change in use.

4

You didn’t mention a partial change in use in your original post. A partial change in use means renting out a portion of your principal residence (E.g a basement apartment). I didn’t think a condo would be possible for a partial change in use since they’re usually a single unit in a building and/or only have one entryway.

What are you referring to when you say partial change in use?

Edit to add: you did mention partially renting. For some reason I took that as renting it temporarily. Sorry if that’s not the case. 45(2) and 45(3) is available for partial changes provided it meets certain criteria.

5

Thanks! he rented out 2 of 3 bedrooms, keep his own room when he comes back. I think S45(2) is needed based on your explanation.

Thanks!

6

@gmao
Note that the 45(2) election is supposed to be filed at the same time as the T1 in the year he moved away. It can be filed late, but there is a penalty, and its acceptance is at the discretion of the MNR.