# Capitals gains on Principal Residence with Apartment?



## FrugalTrader (Oct 13, 2008)

Question, say my principal residence has an apartment in the basement (smaller than the upstairs) that is rented out. When it comes time to sell the property and there is a capital gain, is there tax paypable?


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## stardancer (Apr 26, 2009)

If you rent out a portion of your residence, then you are a landlord. You report the rental income, and write off certain expenses against it...100% of those expenses relating 100% to the apartment, and XX% of those expenses that are common. You must designate a reasonable %age of your residence as being rental. For example, I have 2 apartments and live in one large apartment. The split in terms of area is 50/50, so I use 50% of the water, heat, certain maintenance, common hydro etc.

I have kept track of all the capital expenditures over the years- using 50% of the improvements for the common areas (like a new roof) and 100% of the improvements for the rental areas to appreciate the rental portion of the ACB. When it comes time to sell, 50% of any capital gain or capital loss will be reportable and subject to tax according to the rules.

So, your portion of the capital gains will be taxable; how much will then depend on your other tax-related circumstances.


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## kcowan (Jul 1, 2010)

And you should not write off capital depreciation on the rental portion.


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## Ethan (Aug 8, 2010)

I'm in the same situation. I write off 1/3 of my common costs (mortgage interest, gas, power, water, insurance etc.) and 100% of the costs that relate only to my basement. When I sell the house, I'll incur a capital gain on 1/3 of the increase in value of my home.


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## Sampson (Apr 3, 2009)

FrugalTrader said:


> Question, say my principal residence has an apartment in the basement (smaller than the upstairs) that is rented out. When it comes time to sell the property and there is a capital gain, is there tax paypable?


From the way I understand it, yes.

You set a new cost base for the unit, and based on whatever fraction you are renting out, you must pay gains on any future gains, but only at the % you set out initially (based largely on tax deductions you take, as others describe above).

I believe the CRA has a few pages on this and some sample calculations on the internet.


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## FrugalTrader (Oct 13, 2008)

Thanks for the info guys, that's along the same lines as what I was thinking.


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## Charlie (May 20, 2011)

from CRA's site:



> . It is our practice not to apply the deemed disposition
> rule, but rather to consider that *the entire property retains its
> nature as a principal residence*, where all of the following
> conditions are met:
> ...


That's from their IT on principal residence.
http://www.cra-arc.gc.ca/E/pub/tp/it120r6/it120r6-e.pdf

the general practice I've seen in Vancouver -- where suites are very common -- is that if the non-residence portion is less then 50% (includes suites and home offices), and the house still looks like a house (if internal stairs have been removed they could be replaced...there isn't a store attached, it isn't really a duplex, etc --basically almost all cases) people rely on the above and claim principal residence on the whole thing. Technically, it may be offside -- but it's in line with their stated practice. What constitutes a 'structural change' might be arguable...but I've never seen it challenge where the envelope still looks like a single house.


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## iherald (Apr 18, 2009)

As Charlie said, if you have more than 50% of the house for your self, and you do not deduct capital depreciation on the building, you continue to have a principal residence and you do not pay any capital gains.


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