Election 45(2) primary residence change in use

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Feb 17th, 2021 7:33 pm

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Feb 17th, 2021 7:43 am

oceans_end [OP]: Deal Addict; Oct 26, 2003; 1258 posts; 228 upvotes; Ottawa

Feb 17th, 2021 7:43 am

Election 45(2) primary residence change in use

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

It says when changing primary residence to income producing property, election can be made so one does not have to report capital gain for change in use.

in order to use election 45(2) for up to 4 years, all of the following condition must be met:
- do not designate any other property as your primary residence
- resident or deemed to be resident of Canada

Does one have to designate a primary residence when their living in Canada?

If I rent out my current house and go live with my parents, does that qualify?
Or
If my gf and I have our own houses, we move into one of them together, and rent out the other does that qualify?

7 replies

Feb 17th, 2021 8:13 am

DaveTheDude: Deal Addict; Mar 3, 2018; 1857 posts; 1841 upvotes; GTA

Feb 17th, 2021 8:13 am

Does one have to designate a primary residence when their living in Canada?

Only on the sale of a property that may have been your principal residence.

If I rent out my current house and go live with my parents, does that qualify?

Yes if you are over the age of 18 that would qualify as you only have one property available to designate as your principal residence.

Or
If my gf and I have our own houses, we move into one of them together, and rent out the other does that qualify?

Only one property per family unit can be designated as a principal residence. A couple living common law is a family unit. Only one of the houses can be designated as a principal residence during the years you are together.

Feb 17th, 2021 1:40 pm

oceans_end [OP]: Deal Addict; Oct 26, 2003; 1258 posts; 228 upvotes; Ottawa

Feb 17th, 2021 1:40 pm

DaveTheDude wrote: ↑ Does one have to designate a primary residence when their living in Canada?

Only on the sale of a property that may have been your principal residence.

If I rent out my current house and go live with my parents, does that qualify?

Yes if you are over the age of 18 that would qualify as you only have one property available to designate as your principal residence.

Or
If my gf and I have our own houses, we move into one of them together, and rent out the other does that qualify?

Only one property per family unit can be designated as a principal residence. A couple living common law is a family unit. Only one of the houses can be designated as a principal residence during the years you are together.

So for both options above I could filed the election then rent it out, and not have to pay capital gain tax when I sell it?

Feb 17th, 2021 1:59 pm

Hp4041: Member; May 10, 2020; 284 posts; 275 upvotes

Feb 17th, 2021 1:59 pm

oceans_end wrote: ↑ So for both options above I could filed the election then rent it out, and not have to pay capital gain tax when I sell it?

As an individual , you can make the election, live in another place and when you sell the original place you dont pay cap gain tax. But there is a 4 yr upper limit to this. You cant do this indefinitely (technically you can in some scenarios - but i am assuming those dont apply to you).

Meanwhile, your gf has her own place which is her primary residence.

If you move in with her and become common law, then betwen the 2 of you there can be only primary residence (not 2) .

Now, if you move in to her place as her "tenant", then things can be treated differently but of course on paper you guys are not common law then.

Feb 17th, 2021 2:10 pm

ZhaoW9051: Newbie; Apr 9, 2020; 66 posts; 55 upvotes

Feb 17th, 2021 2:10 pm

I agree it is confusing,

You can only avoid capital gain tax if you plan to sell within 4 years and if you do not have another primary residence. In your case, you do have another primary residence. You will pay capital gain tax regardless.

The only difference for making the report on the change of use is to determine what is the base price of the house.

if your claim the change of use, the capital gain will be (the final sell price )-(the fair market price or appraised price at the time it becomes rental)

if you do tax election but still use it as the rental unit, the capital gain will be [(the final sell price )-(the original purchase price)]*(the number of year as a rental unit)/(total years)

Feb 17th, 2021 6:44 pm

oceans_end [OP]: Deal Addict; Oct 26, 2003; 1258 posts; 228 upvotes; Ottawa

Feb 17th, 2021 6:44 pm

ZhaoW9051 wrote: ↑ I agree it is confusing,

You can only avoid capital gain tax if you plan to sell within 4 years and if you do not have another primary residence. In your case, you do have another primary residence. You will pay capital gain tax regardless.

The only difference for making the report on the change of use is to determine what is the base price of the house.

if your claim the change of use, the capital gain will be (the final sell price )-(the fair market price or appraised price at the time it becomes rental)

if you do tax election but still use it as the rental unit, the capital gain will be [(the final sell price )-(the original purchase price)]*(the number of year as a rental unit)/(total years)

From the sound of it, this election would only work if one is going out of the country? Or else how would one not have a primary residence?

If I want to rent out my place and avoid the capital gains 4 years later when I sell, whichever house I move to will be deemed my primary residence? If I’m the tenant of somebody, isn’t the rental my primary residence?

Feb 17th, 2021 7:27 pm

ZhaoW9051: Newbie; Apr 9, 2020; 66 posts; 55 upvotes

Feb 17th, 2021 7:27 pm

oceans_end wrote: ↑ From the sound of it, this election would only work if one is going out of the country? Or else how would one not have a primary residence?

If I want to rent out my place and avoid the capital gains 4 years later when I sell, whichever house I move to will be deemed my primary residence? If I’m the tenant of somebody, isn’t the rental my primary residence?

If you rent other places, yes , you are right that your rental will still be primary residence. You can avoid gain within next 4 years.

However, you should not rent your girl friend places because it does not make sense. If you pay rent to your girl friend place , not only she has to pay tax on the rental income but also she needs to pay capital gain when she sells her house.

Feb 17th, 2021 7:33 pm

ZhaoW9051: Newbie; Apr 9, 2020; 66 posts; 55 upvotes

Feb 17th, 2021 7:33 pm

oceans_end wrote: ↑ From the sound of it, this election would only work if one is going out of the country? Or else how would one not have a primary residence?

If I want to rent out my place and avoid the capital gains 4 years later when I sell, whichever house I move to will be deemed my primary residence? If I’m the tenant of somebody, isn’t the rental my primary residence?

The election will work if you move out of city you live for work or other reasons and come back in 4 years or sell within 4 years.

It does not make sense that you avoid tax by paying rent to your gf. Of course , if you and your girl friend split before you become common law, then it may make sense !!

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