# Tax implications on renting out principle residence



## faline (Feb 10, 2011)

Hi everyone,

I understand I can designate a home my principle residence for up to 4 years, as long as I do not claim Capital Cost Allowance. 

Can I still claim mortgage interest, insurance, property taxes, etc? 

Is there anything else I should know regarding tax implications when I sell the home in 3-4 years? 

I was going to sell now but then realized the hefty fee to get out of my mortgage! 

Thanks,
Faline


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## MoneyGal (Apr 24, 2009)

No, you can claim the PRE if the home *is your principal residence.* Which means you actually live in it. If you rent out the entire house, it is as a matter of fact not your principal residence and you cannot claim the PRE on the property. CRA will connect your rental income (if declared) and your deductions (if claimed) and disallow the PRE.


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## faline (Feb 10, 2011)

I did live in it for 2 years, but have been renting it out for about 8 months. I thought I could rent it for a total of 4 years and still consider it my principle residence as long as I don't consider a different property my principle residence and don't claim CCA. Is that incorrect?
If it is correct, I'm still not sure if I can claim mortgage interest, insurance, property taxes, etc during that 4 year period.
Thanks for feedback


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## MoneyGal (Apr 24, 2009)

From CRA, here: http://www.cra-arc.gc.ca/tx/ndvdls/...rtng-ncm/lns101-170/127/rsdnc/wht/hw-eng.html

A property qualifies as your principal residence for any year if it meets all of the following four conditions:

It is a housing unit, a leasehold interest in a housing unit, or a share of the capital stock of a co-operative housing corporation you acquire only to get the right to inhabit a housing unit owned by that corporation.
You own the property alone or jointly with another person.
*You, your current or former spouse or common-law partner, or any of your children lived in it at some time during the year*.
You designate the property as your principal residence.


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## faline (Feb 10, 2011)

I think this applies to my situation though:

Special situations
In certain situations, the rules stated above for changes in use do not apply. The following are some of the more common situations.

Changing all your principal residence to a rental or business property

When you change your principal residence to a rental or business property, you can make an election not to be considered as having started to use your principal residence as a rental or business property. This means you do not have to report any capital gain when you change its use. If you make this election:

•you have to report the net rental or business income you earn; and
•you cannot claim capital cost allowance (CCA) on the property.
While your election is in effect, you can designate the property as your principal residence for up to four years, even if you do not use your property as your principal residence. However, you can only do this if you do not designate any other property as your principal residence for this time.


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## MoneyGal (Apr 24, 2009)

Whoops. You are right. I had totally forgotten that rule! Disregard my earlier posts, and hopefully someone else will come along and provide the other answers you are looking for.


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## Westerly (Dec 26, 2010)

Yes you are correct. You report as your quote above, "you have to report the net rental or business income you earn." The net is determined by deducting interest, property tax etc (but not CCA.) I believe the election itself has to be actually filed and has time limits. I also believe you can "late file" an election if need be but you will pay penalties, which add up quickly.


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## MoneyGal (Apr 24, 2009)

Interest and property taxes are *current* expenses, not capital expenses, so they do not affect a capital gain exemption. 

Here's a link to the CRA page on "current expenses and capital expenses" which should be helpful: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/rntl/crcp-eng.html


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## faline (Feb 10, 2011)

Thanks!


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## beaconhill (Oct 28, 2014)

I'm reviving an old thread to see if anyone has any practical experience with late filing an election to consider one's home a principal residence for an additional four years beyond the time an owner lived in it. I was not aware an election needed to be filed with the tax return at the time of the change, and it would be very unfortunate if I could not benefit from the additional four years of considering my home a principal residence.
Thanks!


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## Young&Ambitious (Aug 11, 2010)

Very few people actually file the election. 

You can file it using CRA's Voluntary Disclosures Program.


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## domelight (Oct 12, 2012)

Section45(2) election
The 45(2) election is an optional election that a taxpayer can file which prevents a personal property from being considered deemed disposed of at the time the taxpayer begins to rent the property, and deemed disposed of again at the time the taxpayer re-occupies the property. Whether a 45(2) election should be filed or not is beyond the scope of this article. However, if the 45(2) election is not filed by April 30th of the year following the year of change in use to a rental property, it can be late filed subject to the CRA’s discretion and a penalty of $100 per completed month that the election is notfiled, up to a maximum of $8,000. Many taxpayers are shocked to find that when they return to Canada to reoccupy the property, there is a deemed disposition and tax on a home they have not sold. In certain situations, the45(2) election may be a benefit, but the benefit would have to be weighed against the $8,000 maximum penalty.

Keep in mind your only paying the gains from the time you moved out. get a letter of opinion of value from a real estate agent at the time you ceased residence. It's usually not difficult to argue their was no appreciated value in the four year time frame. and if it did its not much
So a 20,000 appreciation in four years would be great and the tax would be 20K x 50% x your tax bracket, lets say 36% so $ 3,600 in tax owing on a 20k gain.


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