Principal Residence to rental

Tax Topics
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Hi all, i had a property as principal residence from april 2012 to sep 2021, i moved to another property and rented my first home from oct 2021. I was unaware that i have to declare Change in Use of Principal Residence to Rental Property. I got an appraisal done in sep 2021. But i filed the income/expenses etc from the rental property. 1.should i amend my 2021 tax to report ? If so, how do i do that what forms to fill, any penalty? 2. Some accountants that i consulted say that as long as i have reported the rental income along with address in 2021 tax return its not required to report as deemed disposition. 3. Another accountant says it should use the sep 2021 appraisal as new cost basis when actually selling. So no need to restate the 2021 tax return. Pls clarify. Thanks!

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Changing your principal residence to a rental
You may elect under subsection 45(2) though a late-filing penalty can be imposed @ $100 per month x the number of months late, to a maximum of $8,000. If you own the new home, you can claim only the one you’re in or the rental as principal residence.

Principal Residence to rental
Without the 45(2) election, the T2091IND Designation of a Property as a Principal By and Individual (Other Than a Personal Trust), should have been filed with the 2021 return. When the disposition of the principal residence is reported late, the same late-filing penaltycan be imposed @ $100 per month x the number of months late, to a maximum of $8,000.

Cancel or waive penalties and interest
If you meet the criteria, CRA may waive the penalties.

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Hi Helga,
Thanks for the reply.

  1. I own the home jointly with my wife. So the penalty would be 2x$100/month? Or will it be 1x$100/month?

  2. Will CRA accept the late filing of the Change of use usually or will they push back?

Thanks!

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Since the UHT is new, we really don’t know what they will do. Was the rental property fully rented by Canadian citizens at fair market value? If so, there should be no penalty. But how do I know until I file.

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Have you followed the link to Cancel our waive penalties and interest?

That relates to the individual taxpayer, and should answer the second question you have asked.

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I’m not sure if the actual tax law changed since they introduced the T2091 in 2017, but you used to have a choice - to either report the deemed disposition (due to change in use) or to use the PRE formula when you actually sell the property. The overall tax effect may be different, depending which method you choose.

Since 2017, CRA won’t accept the “new cost base” unless you filed a T2091 for the year the property changed to “income producing”. So, then, your only choice would be to use the PRE formula when you sell. But, if you do the calculations and determine that it would have been better if you HAD established a new cost base in that year, you CAN try to file the T2091 LATE - just take into account the late filing penalties.

1 Like
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Thanks Nezzer.

I was talking to an accountant who suggests filing T2091 as supplementary filing now to inform the change of use and new apprised value as cost basis and report 45(2) of this as well. He says CRA wont charge any penalty.

BTW, what is PRE formula and can i use it to calculate the tax as 50% of (sell price - new cost basis) ?

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PRE means Principal Residence Exemption, as defined in ITA 40(2)(b).

No, you can’t calculate the tax as 50% of (sell price - cost base). If you don’t know how to use the PRE formula, I suggest you review your text books or your notes from your university tax classes. If you are not an accountant, or have not studied tax in some manner, I strongly suggest you HIRE an accountant (that is, PAY them to do it for you, or explain it to you).