principal residence

[flyingsquirrel]

If I rent out a property, can it still be my principal residence and exempt from capital gain tax?

 

[bizaro86]

[quote user=flyingsquirrel]If I rent out a property, can it still be my principal residence and exempt from capital gain tax?




No. You only get tax free capital gains on one principal residence at a time, and you have to be living in it. That being said, if you bought a property 2 years ago and lived in it until now, and gain from the then until now is tax free, and any gain going forward would be taxable.



The CRA has a process to follow when converting a property from a principle residence to a rental property, I think you may need to get an appraisal or market valuation done.



Michael

 

[MrHamilton]

Sophisticated real estate investors who want to invest for the long term will want to avoid the grey areas.



Sounds like tax evasion to me.

 

[bizaro86]

On doing further research for your benefit, I found this:



http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/rprtng-ncm/lns101-170/127/rsdnc/chngs/chngngll-eng.html



It sounds to me (and I'm not an accountant) that you can change your personal residence to a rental property and not pay capital gains later if you make the correct election. There are numerous conditions: only for 4 years, must pay tax on rental income and can't use CCA, and the reason you're moving is that you or your spouse are moving more than 40km for work. You also have to move back into the property after.



If this very specific situation does not apply to you, then a brief description of the rules can be found here.



http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/rprtng-ncm/lns101-170/127/rsdnc/chngs/menu-eng.html



Basically, you have a "deemed disposition" of the personal residence at its value when its use changes, and a "deemed acquisition" of the rental property when the use changes.



Hope that helps (and if it's unclear get an account. I'm not one, and this isn't advice)



Michael

 

[wealthyboomer]

Also note that if you add a secondary suite to your principal residence that you will incur a capital gain tax on the income producing portion upon a sale.

 

[Thomas Beyer]

[quote user=wealthyboomer]will incur a capital gain tax


.. may .. not necessarily "will" !! Depends on value and (possible) upside !

 

[flyingsquirrel]

Strickly speaking, adding a secondary suite is not allowed by the city by law anyway.

So it is a good idea to flip every 4 years to prevent capital gain tax.

 

[bizaro86]

I think you may be misinterpretting the "4 years" thing. It's an exemption for people who have to move for work for a short time. If that isn't your situation, then the exemption has nothing to do with you.



IE. I live in Calgary, and own a house. If my work transferred me to Dallas for a year, I could rent my house out for that year, and then move back into it when I came back to Calgary, and maintain my personal residence status.



I really don't think this is a loophole you'll be able to exploit for tax free capital gains treatment on your investment portfolio, and it's probably important that you don't try to do so.



If you're just talking about paying tax on your actual personal residence, you can stay as long as you want and not pay tax. It's just a straight exemption.



Regards,



Michael

 

[housingrental]

Please for the love of all things good give accountant George Dube a shout