Renting Out a Residence
If you decide to rent out the residence you own and live in, a change in use occurs. When you begin renting out your residence, you are deemed to have disposed of it at fair market value and to have reacquired it immediately at the same price.
The deemed disposition of a property considered to have been your principal residence since the time you purchased it does not result in a capital gain. Should you cease to rent out the property, another deemed disposition occurs, and any increase in the fair market value since the change in use does constitute a capital gain.
However, a special provision allows you to rent out your residence for a maximum of four years; and to designate it nonetheless as a principal residence exempt from tax on capital gains tax.
To take advantage of this provision, enclose with your income tax return, for the taxation year in which you began renting out your residence, a letter in which you describe the property that you are designating as your principal residence. Please note that you may not claim capital cost allowance with respect to such a residence.
If you rent out a portion of your residence (for example, one or two rooms to boarders), it does not lose its status as your principal residence. You may not, however, claim capital cost allowance on the portion rented out.
If you occasionally rent out rooms (for example, during an annual festival), you are not required to include this rental income in your income, provided you meet the following conditions:
- the rental period does not exceed 20 days for the year
- you receive no other income from room rentals
If you acquire a property in order to rent it out and later decide to use it as your principal residence, you are deemed to have disposed of the property at its fair market value at the time of the change in use, unless you make an election to report your capital gain at the time you actually dispose of the property.
If you decide to report your capital gain at the time you actually dispose of the property, you must:
- enclose with your income tax return a letter, duly signed, in which you describe the property and indicate that you are making the election under section 286.1 of the Taxation Act
- make your election by the earlier of the following dates:
- the date that is 90 days after the Minister requests that you make such an election
- the filing date applicable to your income tax return for the year following the year in which you actually dispose of the property
For further information, consult the brochure Individuals and Rental Income (IN-100-V).