Real Estate

Converting Principal Home into Rental

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  • Mar 24th, 2024 5:40 pm
Jr. Member
Jul 24, 2010
118 posts
84 upvotes
Toronto

Converting Principal Home into Rental

I am converting Principal condo into a rental and did get a property evaluation done
What else donI need to do?
Tried looking at CRA website to see of there are any forms to be filled.....got confused, hence looking for advise here :-)
This is in GTA, Ontario.

Or if you can recommend an accountant in West GTA that can help with this.

Thanks
38 replies
Deal Addict
Mar 3, 2018
3476 posts
3998 upvotes
GTA
One of two things:

- Report the principal residence deemed disposition at FMV (your valuation) on your tax return by completing the box on the bottom of Schedule 3 and page one of the T2091 form.
or
- If you will not own another principal residence while the condo is a rental file a 45(2) tax election to ignore the deemed disposition. This would allow you to claim the condo as your principal residence up to four years even though rented out.
Deal Addict
May 12, 2003
1008 posts
386 upvotes
+1...this!
DaveTheDude wrote: One of two things:

- Report the principal residence deemed disposition at FMV (your valuation) on your tax return by completing the box on the bottom of Schedule 3 and page one of the T2091 form.
or
- If you will not own another principal residence while the condo is a rental file a 45(2) tax election to ignore the deemed disposition. This would allow you to claim the condo as your principal residence up to four years even though rented out.
Member
Mar 3, 2021
326 posts
194 upvotes
I'm doing the same for 2022, may I ask how much you paid for property evaluation?

After that's done, just have to file an election to CRA every year so when you sell you only pay taxes on the appreciation portion from there.
Jr. Member
Jul 24, 2010
118 posts
84 upvotes
Toronto
TVBuddies wrote: I'm doing the same for 2022, may I ask how much you paid for property evaluation?

After that's done, just have to file an election to CRA every year so when you sell you only pay taxes on the appreciation portion from there.
Paid $400 for evaluation
Sr. Member
Jan 14, 2008
842 posts
594 upvotes
Toronto
DaveTheDude wrote: One of two things:

- Report the principal residence deemed disposition at FMV (your valuation) on your tax return by completing the box on the bottom of Schedule 3 and page one of the T2091 form.
or
- If you will not own another principal residence while the condo is a rental file a 45(2) tax election to ignore the deemed disposition. This would allow you to claim the condo as your principal residence up to four years even though rented out.
So even though the principal residence property was not sold, and changed in use to a rental this "disposition" has to be done?
Edit- i just read the form in detail. its a deemed disposition

So if one rented out their property from 2018, should they do this process now and file it late?
Deal Addict
Mar 3, 2018
3476 posts
3998 upvotes
GTA
gc99 wrote: So even though the principal residence property was not sold, and changed in use to a rental this "disposition" has to be done?

So if one rented out their property from 2018, should they do this process now and file it late?
The reporting of principal residence dispositions has been a requirement since 2016. This includes deemed dispositions where changing use to a rental. If the property changed use in 2018 that deemed disposition was required to have been reported on the 2018 tax return claiming the principal residence exemption.

This is CRA's policy in regards to late filing:
If the disposition of the principal residence is reported late a late-filing penalty can be imposed @ $100 per month x the number of months late, to a maximum of $8,000.
If you fail to report the sale of your principal residence at all, you may be taxed on the capital gain on that principal residence.

If a penalty is applied you could request a waiver by filing a 'Request for Taxpayer Relief' form. Being a recent reporting requirement there may be some relief granted.
Member
Mar 3, 2021
326 posts
194 upvotes
watul wrote: Paid $400 for evaluation
Thank you, just a quick clarification, did you do the evaluation the same year same month as you when changed your property from principal to rental?
Member
Mar 3, 2021
326 posts
194 upvotes
DaveTheDude wrote: One of two things:

- Report the principal residence deemed disposition at FMV (your valuation) on your tax return by completing the box on the bottom of Schedule 3 and page one of the T2091 form.
or
- If you will not own another principal residence while the condo is a rental file a 45(2) tax election to ignore the deemed disposition. This would allow you to claim the condo as your principal residence up to four years even though rented out.
Do you know whether the appraisal has to be done within the month of when you changed from principal to rental?
For e.g. if I do an evaluation now and I plan to rent out my place Jan, would CRA really bat an eye?
Deal Addict
Mar 3, 2018
3476 posts
3998 upvotes
GTA
TVBuddies wrote: Do you know whether the appraisal has to be done within the month of when you changed from principal to rental?
For e.g. if I do an evaluation now and I plan to rent out my place Jan, would CRA really bat an eye?
The FMV (valuation) should be on the date of the change of use. Personally I wouldn't spend money on getting a formal appraisal if you can come up with a value using comparable sales from online sources. I would only spend the money on an appraisal if CRA challenged my value.

You will want the value to be as high as possible as it becomes the cost base of the now rental property. If a formal appraisal gives you more comfort you can go that route but it is not a requirement.
Sr. Member
Jan 14, 2008
842 posts
594 upvotes
Toronto
DaveTheDude wrote: The reporting of principal residence dispositions has been a requirement since 2016. This includes deemed dispositions where changing use to a rental. If the property changed use in 2018 that deemed disposition was required to have been reported on the 2018 tax return claiming the principal residence exemption.

This is CRA's policy in regards to late filing:
If the disposition of the principal residence is reported late a late-filing penalty can be imposed @ $100 per month x the number of months late, to a maximum of $8,000.
If you fail to report the sale of your principal residence at all, you may be taxed on the capital gain on that principal residence.

If a penalty is applied you could request a waiver by filing a 'Request for Taxpayer Relief' form. Being a recent reporting requirement there may be some relief granted.
thank you for this information

i missed to do this one my rental, so i will look for an appraiser and get this done
Newbie
Nov 3, 2021
4 posts
Hi. I have a similar question that I hope someone can assist with.

Earlier this year we completed an "Agreement for Sale" transaction for our previous primary residence. The purchaser provided us with a downpayment and the terms of the sale take place over a 5 year period for which I received payment each month, like a rental property, except that a portion goes towards paying down the balance. I'm not quite sure how to go about handling this on my tax return as it is not really a rental and the purchase terms do not close until the end of the term. This is in Edmonton, Alberta.

Thanks in advance!
Member
Mar 3, 2021
326 posts
194 upvotes
DaveTheDude wrote: The FMV (valuation) should be on the date of the change of use. Personally I wouldn't spend money on getting a formal appraisal if you can come up with a value using comparable sales from online sources. I would only spend the money on an appraisal if CRA challenged my value.

You will want the value to be as high as possible as it becomes the cost base of the now rental property. If a formal appraisal gives you more comfort you can go that route but it is not a requirement.
Hmm so appraisal is not a mandatory if you can save comparable sales in similar area, do I have to include my range or number during my election?
Right, cuz you can always do a back dated appraisal if they challenge. I know that when they do property appraisal they are always on the lower end of the spectrum.
Deal Addict
Mar 3, 2018
3476 posts
3998 upvotes
GTA
TVBuddies wrote: Hmm so appraisal is not a mandatory if you can save comparable sales in similar area, do I have to include my range or number during my election?
Right, cuz you can always do a back dated appraisal if they challenge. I know that when they do property appraisal they are always on the lower end of the spectrum.
Just to clarify when you refer to election. You only need a FMV if you are reporting the deemed disposition of your principal residence on your tax return. Like the change in use to rental. This is not an election. Just report one value as your proceeds of disposition.

If you are actually filing an election like 45(2) you are electing there was no deemed disposition and therefore no FMV is required. But you need to qualify to file that election. Basically you have no other principal residence you own after changing the use of the other property you own to rental.
Member
Mar 3, 2021
326 posts
194 upvotes
DaveTheDude wrote: Just to clarify when you refer to election. You only need a FMV if you are reporting the deemed disposition of your principal residence on your tax return. Like the change in use to rental. This is not an election. Just report one value as your proceeds of disposition.

If you are actually filing an election like 45(2) you are electing there was no deemed disposition and therefore no FMV is required. But you need to qualify to file that election. Basically you have no other principal residence you own after changing the use of the other property you own to rental.
Right, I plan on filing an election because I'll be relocating away from Canada for work (won't be a tax paying residence anymore), and won't declare any other residence as principal. So in this case, I just need to file an election for 2022 tax year and every other tax year for up to 4 years right, no need to provide an appraisal. And by the time I plan to sell I won't be paying any capital gain this way.
Deal Addict
Mar 3, 2018
3476 posts
3998 upvotes
GTA
TVBuddies wrote: Right, I plan on filing an election because I'll be relocating away from Canada for work (won't be a tax paying residence anymore), and won't declare any other residence as principal. So in this case, I just need to file an election for 2022 tax year and every other tax year for up to 4 years right, no need to provide an appraisal. And by the time I plan to sell I won't be paying any capital gain this way.
Non-resident? That throws a wrench into using a 45(2) election as you need to be a resident during those four years for them to be exempt.
Member
Mar 3, 2021
326 posts
194 upvotes
DaveTheDude wrote: Non-resident? That throws a wrench into using a 45(2) election as you need to be a resident during those four years for them to be exempt.
No way really... My friends who've done this are fine they just have to pay rental tax to CRA every month or something.

Even if I have to pay 25% of 50% of the appreciation from FMV to when I sell, I think thats still not bad.

https://www.canada.ca/en/revenue-agency ... anada.html

1. Are non-residents eligible for the principal residence exemption?
A property in Canada that is owned in a particular tax year by a non-resident of Canada, may qualify as the non-resident’s principal residence for that year. However, the use of the principal residence exemption by a taxpayer is limited by reference to the number of tax years ending after the acquisition of the property during which:
the taxpayer was resident in Canada; and
the property is the taxpayer’s principal residence.
Deal Fanatic
Jul 3, 2011
6517 posts
3798 upvotes
Thornhill
You are describing a vendor take back mortgage.

You may be eligible to claim a tax deferral over 5 years.

You should seek the advice of a tax accountant versed in the sale of real property.

https://www.canada.ca/en/revenue-agency ... serve.html
tmah2021 wrote: Hi. I have a similar question that I hope someone can assist with.

Earlier this year we completed an "Agreement for Sale" transaction for our previous primary residence. The purchaser provided us with a downpayment and the terms of the sale take place over a 5 year period for which I received payment each month, like a rental property, except that a portion goes towards paying down the balance. I'm not quite sure how to go about handling this on my tax return as it is not really a rental and the purchase terms do not close until the end of the term. This is in Edmonton, Alberta.

Thanks in advance!
Sr. Member
Oct 2, 2013
889 posts
314 upvotes
Mississauga
I am thinking of doing something similar. Turning my principal residence into rental and buying another principal residence.

I tried to search online but i didnt see any calculator or a place to find afforability and how and if my current income can allow me to get a second mortgage.

Any insight other than going to a broker, i am just trying to see if its even worth it at this point.

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