Change of Property Use & Election Options

When you change the use of a property, you may be considered to have sold all or part of your property even if you have not actually sold it and may have to report capital gain and pay tax on it.  Whenever there is a change made on the usage, the property is considered to have been sold and immediately reacquired at the fair market value. There are certain elections that can be made to postpone the recording of the disposition until the property is sold. 

When changing a principal residence to a rental or business property, an election under subsection 45(2) of the Income Tax Act can be made. This election allows you to designate the property as your principal residence for up to 4 years even if you use it as a rental or business property. During this period of 4 years, you must be a resident of Canada and must not designate any other property as your principal residence.  You cannot claim any Capital Cost Allowance (CCA) on the property.  The deadline to file this election is the due date of your tax return for the year in which the change in use occurs.

When changing a rental or business property to a principal residence, an election under subsection 45(3) of the Income Tax Act can be made. This election allows you to designate the property as a principal residence up to four years before you actually use it as a principal residence. This election cannot be made if any CCA on the property has been claimed.  The deadline for this election is the due date of your tax return for the year in which you sell the property.

The above information is of a general nature only and should not be relied upon for specific situations.  Call Marlies Y Hendricks, CPA at 416-766-3941 or submit email enquiry form below to set up a consultation.