I just took on a new client this year who owns a secondary home which she has been renting to her daughter since 2006. She asked me if she is able to claim this property as her principal residence instead of the one she’s living in due to the gain potentially being larger. As the ordinarily inhabited rule includes “taxpayer or by his or her spouse or common-law partner, former spouse or common-law partner, or child” it should qualify. However, she has made some improvements and upgrades (air conditioner, appliances, etc) which she capitalized to class 8 and has been taking CCA on that class (even though the air conditioner should have gone to class 1). She has not taken any CCA on the original cost of the building which is in class 1.
It may be a mute point because she is not planning on selling either property soon but I am wondering if taking CCA on these fixtures in class 8 would exclude her from the PRE in future.
Not sure, but I think the existence of a typical rental arrangement would prevent her from designating the rental property as her principal residence. The PRE is intended to exempt the gain from a property that is being used as a family domicile (i.e. no rental income, or incidental at most). The owner may not live there FULL TIME, but it’s expected that the owner could go and STAY there at any time. If there is a rental arrangement in place, the landlord can’t enter the property without sufficient notice to the tenant (among other things). So, I wouldn’t count on using the PRE, regardless of the CCA claims.
Thanks @Nezzer. As she is renting to her daughter, she could argue that the income was incidental, just to cover the expenses of the property. There is no formal rental agreement in place but she has been reporting the income and expenses to CRA.
But thinking about it, I would not be comfortable claiming this as a principal residence since CCA has been assigned to the property in the past, even though different classes.
Why does the T776 ask the question : “Was this the final year of rental operation”? My client is considering to stop charging rent to her daughter as now she’s in a position of her OAS getting clawed back and the daughter is in financial hardship. She may start charging again in future. Is this question only in relation to a change in use?