Property change in use and then sold

Tax Topics
1

My client purchased a condo in 2014 and used it as principal residence from 2014 to 2015. Then this property changed to a rental property in September 2015. There was a deemed disposition due to change in use and no election 45(2) was filed. Since reporting sales of principal residence was not mandatory in 2015, no reporting for PRE was done in 2015 T1. The property was sold in 2025 at loss. I plan to do the following:

  1. ACB of the property is the FMV in 2015.
  2. Need to separate the FMV and cost of land and building. Capital loss of the land will be reported in S3. No loss is allowed for building as it is depreciable property

I have two questions:

  1. In the 2025 T1, the property was actually purchased in 2015 for FMV in that year. So PRE from 2014 to 2015 is not reported. Is this correct?
  2. How can I get the FMV in 2015? BC assessment does not show the value that far.
  3. I will use the property assessment to figure out the ratio of land and building. Is it correct?
  4. Some online resource says I can claim terminal loss for the building even if the CCA was never taken. I don’t think so, but hope to get a confirmation here.

Thanks!

2

The BC property assessment, while it may (may!) give you an adequate land/bldg split, is not guaranteeed to do so, nor will it likely provide an adequate FMV. Typically, I’ve told clients doing this to establish the FMV at the time of change, with an appraiser….but they can also do this “in arrears” and establish a reasonable FMV for the property as of 2015, today. Yes, it costs money.

Once you establish the FMV, the appraiser can also provide an appropriate land/bldg split. THAT will determine where the loss occurs (land, bldg or both). Of course clients hate to pay for that kind of stuff, so will probably just guess.

Can’t (offhand) think of why a Terminal Loss wouldn’t be allowable. The fact that it wasn’t depreciated doesn’t change the fact that the building is, in fact, depreciable property…and CCA is an “elective” provision…you may, or may not, claim same as circumstances may dictate.

3

Thank you. If terminal loss is allowable, where can I claim it if it is not in the CCA system?

4

Hi,

  1. Definitely worth the expense (deductible as well) to have a valid property assessment ($500-$1,000).

  2. For a Condominium, the land is considered a common element and is owned by the condominium, so there is no land value to separate.

  3. 2016 is when the report, or rather claim, for the PR election was mandated to be reported on the T2091. So the deemed disposition under 45(1) in 2015 will establish the ACB of the property based on the FMV at that time.

  4. Even though CCA was never claimed, you would use the “T776 Asset” to document the condo and establish the terminal loss. The UCC will be the FMV in 2015, the disposition is the proceeds of the sale (less costs of sale), which will create the reporting of the terminal loss.