# Sale of Principal Residence with Rental Suite



## Young&Ambitious (Aug 11, 2010)

So apparently if you sell a principal residence and it has a rental suite on it, the principal residence exemption does not apply to the portion rented:

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

I thought this wasn't so... Agree or disagree?


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## Just a Guy (Mar 27, 2012)

The general rule of thumb is, if you make money off it, and claim deductions, then it's taxable. 

You wrote off that portion of your house, you can't double dip. The same applies to people with "home offices" that portion is also subject to capital gains. 

Can't have your cake and eat it too.


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## Eclectic12 (Oct 20, 2010)

Years ago, I recall that the tax book I had said that to keep the principal residence exemption required that:

1) only certain tax deductions be written off. [ ex. % of hydro, heat, insurance but not capital cost allowance (CCA) ]

2) good records be kept so that it was clear that the renter had exclusive and partial use of only a % of the house.

http://www.taxtips.ca/personaltax/propertyrental/rentalexpenses.htm


This 2009 article adds that the CRA bulletin on principal residences adds a third condition that that the residence did not change structurally because of the rental. A rental suite is likely to have introduced structural changes.

http://www.nnsl.com/frames/newspapers/2009-08/jul6_09wong.html





Just a Guy said:


> ... The same applies to people with "home offices" that portion is also subject to capital gains.


Can you point me at any links for this?

The accounting firm I worked for in 2001 said the opposite (i.e. a home office would not affect the principal residence exemption). Personally, I never claimed office expenses as I worked from home so rarely I figured it wasn't worth requesting the employer fill out the T2200 form and the paper trail for such a small amount.

I don't recall the requirements - except that CRA was cracking down so to make sure there was only office equipment in the "home office" as a couch in the same area had lead to CRA deciding it was not a home office and rejecting the expense.

I see from this CRA link that if I was still in that job, the "The work space is where you mainly (more than 50% of the time) do your work" criteria would mean I'd no longer qualify.
http://www.cra-arc.gc.ca/tx/ndvdls/...ng/ddctns/lns206-236/229/slry/wrkspc-eng.html


Cheers


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## MoneyGal (Apr 24, 2009)

Eclectic: that link is only for EMPLOYEES (not self-employed) who want to deduct workspace in the home expenses. 

*So long as you do not deduct mortgage PRINCIPAL, your principal residence exemption is not affected by deducting workspace in the home expenses for a self-employed person*. Mortgage interest is an operating cost, just like Internet, heat and hydro, etc. This is made very clear in s.4 of IT514: http://www.cra-arc.gc.ca/E/pub/tp/it514/it514-e.html


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## Eclectic12 (Oct 20, 2010)

MoneyGal said:


> Eclectic: that link is only for EMPLOYEES (not self-employed) who want to deduct workspace in the home expenses.


Since my example was from when I was an employee plus if I was still there, I'd be an employee, I'm not sure why a link for employees is an issue. At this point, I doubt the firm is suggesting a home office deduction or providing T2200's any longer (at least for similar role employees).

IAC, the example was intended to show why I was looking for more details as I thought it was more complicated than making a home office deduction negates the principal residence exemption.




MoneyGal said:


> *So long as you do not deduct mortgage PRINCIPAL, your principal residence exemption is not affected by deducting workspace in the home expenses for a self-employed person*...


So essentially - where I was questioning the post, you are disagreeing with it.


Cheers


*Edit:* Thanks for the link confirming what I suspected.


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## MoneyGal (Apr 24, 2009)

For what it is worth, the workspace in the home deductions available to someone who is an employee (of another company), a self-employed person, and a commissioned salesperson all differ. I shouldn't have used ALL CAPS but the list of available deductions differs based on what category you fall into. In none of these cases is the principal residence exemption at risk UNLESS the person in question has claimed CCA on the residence (and only self-employed people could potentially do this in any case).


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## Eclectic12 (Oct 20, 2010)

MoneyGal said:


> ... In none of these cases is the principal residence exemption at risk UNLESS the person in question has claimed CCA on the residence (and only self-employed people could potentially do this in any case).


So the self-employed person claiming the home office is in the "same boat" as the person renting a room out who claimed rental expenses - they have to avoid claiming CCA.


Cheers


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## Young&Ambitious (Aug 11, 2010)

Aha I found the section I was looking for and glad to confirm my thinking was right!

For others who may be interested: 
Source: http://www.cra-arc.gc.ca/E/pub/tg/t4037/t4037-e.html#P4266_152355

Section 6 "Special Considerations" of link above: "You are usually considered to have changed the use of part of your principal residence when you start to use that part for rental or business purposes. However, you are not considered to have changed its use if:
•your rental or business use of the property is relatively small in relation to its use as your principal residence;
•you do not make any structural changes to the property to make it more suitable for rental or business purposes; and
•you do not deduct any CCA on the part you are using for rental or business purposes.

If you meet all of the above conditions, the whole property may qualify as your principal residence, even though you are using part of it for rental or business purposes."


Thank you everyone who responded!


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## Eclectic12 (Oct 20, 2010)

^^^^

So it seems that the tax book info is still correct, with the web article "no structure changes" bit added.

Interesting ...


Cheers


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## iherald (Apr 18, 2009)

What would structural changes mean? I have a duplex, and have a wall up to have seperate enterences, but it's not structurally needed. I assume that would still fall under the PR exemption?


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## MoneyGal (Apr 24, 2009)

There is no way on God's green earth that one could claim an entire duplex, half of which is rented, as one's entire principal residence. Hope that helps!:hopelessness:


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