From what I understand, when a principal residance is converted to a rental, get an appraisal to determine the value upon the change of use. So if you lived there for 9 years and the propert went from 100k to 200k, then you converted to a rental property and it goes from 200k to 250k over the next number of years, you could only pay capital gains on 50% of the 50k gain (at your marginal tax rate).
Obviously the higher the appraisal the better, as it will reduce the amount of tax payable in future.
Please note, not an accountant, but I do know that you don't pay any tax until sold regardless of the change of use. Your accountant is mistaken.
Obviously the higher the appraisal the better, as it will reduce the amount of tax payable in future.
Please note, not an accountant, but I do know that you don't pay any tax until sold regardless of the change of use. Your accountant is mistaken.
This is a website that has good tax tips. Here is some information regarding principal residences.
http://www.taxtips.ca/filing/principalresidence.htm
http://www.taxtips.ca/filing/principalresidence.htm
While it is possible to have tax due without actually selling something, usually via a 'deemed sale', that would not appear to be the case here. With a change in use from a principal residence to a rental property, you do indeed have a deemed sale. Even though you haven't sold the property, the change in use triggers rules that say that you treat it like you have. However, this is actually to your advantage, as any gain on your principal residence is not taxable, and you now have a rental property with a cost equal to it's current value (and not what you paid for it way back when). This means that when you do eventually sell it after being a rental property for a while, the capital gains you pay at that time would be less.
Two quick things to note:
1. The same rule does also work in reverse. If you move into a former rental and make it your own principal residence, you may indeed wind up with a tax bill based on the same 'deemed sale' provisions.
2. If you turn your principal residence into a rental, you may even avoid the capital gains tax on the rise in value for a few years, but this would require you to not have any other principal residence (ie, now be renting your own home). This is possible, but rather rare, so won't go there.
Two quick things to note:
1. The same rule does also work in reverse. If you move into a former rental and make it your own principal residence, you may indeed wind up with a tax bill based on the same 'deemed sale' provisions.
2. If you turn your principal residence into a rental, you may even avoid the capital gains tax on the rise in value for a few years, but this would require you to not have any other principal residence (ie, now be renting your own home). This is possible, but rather rare, so won't go there.
Thanks for the insight everyone. I am definitely on a learning curve here!
Albert - after checking the website you posted it is talking about "deemed dispostion" which is where my accountant is heading. According to that site I may pay capital gains. Is the capital gains due now or is this when they start the capital gains calculations? I did not get an appraisal in June when I moved out. Is it too late to do that now? (I have full market value analysis from trying to sell it)
Would I be best trying to "sell" it to my company or to my ex and then renting it out to avoid capital gains?
Albert - after checking the website you posted it is talking about "deemed dispostion" which is where my accountant is heading. According to that site I may pay capital gains. Is the capital gains due now or is this when they start the capital gains calculations? I did not get an appraisal in June when I moved out. Is it too late to do that now? (I have full market value analysis from trying to sell it)
Would I be best trying to "sell" it to my company or to my ex and then renting it out to avoid capital gains?