Real Estate

Need tax help on Principle Residence Status.

  • Last Updated:
  • Jul 5th, 2020 3:07 pm
[OP]
Jr. Member
Dec 31, 2015
131 posts
27 upvotes

Need tax help on Principle Residence Status.

Looking at selling a house. Bought july 2016. Was bought for myself to live in. My work transfer didn’t happen so I rented it out in sept 2016- current.
I have no other principle residence.
Do I pay capital gains on the sale or can I still claim principle residence exception?
I have researched and been told both answers.
Thanks
14 replies
Deal Addict
User avatar
Dec 13, 2016
3568 posts
3048 upvotes
From 2016 it wasn't your principal residence regardless if you own only 1 property.
[OP]
Jr. Member
Dec 31, 2015
131 posts
27 upvotes
BiegeToyota wrote: From 2016 it wasn't your principal residence regardless if you own only 1 property.
Yes I agree. I am being told I can claim it for 4 years as my principal residence?
I just don’t want a big tax surprise
Member
Jul 15, 2019
363 posts
253 upvotes
You didn't live in the property, so it is not your principal residence... therefore, you cannot claim the exemption. You'd have to pay cap gain taxes on this.

Edit: if you want the CRA definition here you go: "According to the Canada Revenue Agency (CRA), a “principal residence” is any residence ordinarily inhabited by you or a family member in the year."
Deal Addict
User avatar
Dec 13, 2016
3568 posts
3048 upvotes
ontariobrent wrote: Yes I agree. I am being told I can claim it for 4 years as my principal residence?
I just don’t want a big tax surprise
Did you file an exemption with CRA when you started renting your place?
Sr. Member
May 23, 2017
792 posts
525 upvotes
You are probably thinking of this election: https://www.canada.ca/en/revenue-agency ... perty.html

However you needed to make this election at the beginning. It may be too late for you now. Perhaps give CRA a call or talk to an experienced accountant to see if there is any way you can make this election retroactively.
Deal Addict
User avatar
Dec 27, 2007
1211 posts
611 upvotes
Oshawa
This is exactly the opposite of what was said. It WASN’T your principle residence therefor you can NOT claim it as so.

ontariobrent wrote: Yes I agree. I am being told I can claim it for 4 years as my principal residence?
I just don’t want a big tax surprise
Newbie
Jul 4, 2003
27 posts
5 upvotes
Toronto
https://www.canada.ca/en/revenue-agency ... dence.html

Have a look at section 2.54 to 2.56 in this link regarding subsection 45(3) election which can be filed at the time of selling the property. There is an example case there as well which is somewhat similar to yours.

“Similar to the treatment for a subsection 45(2) election (see ¶2.50 to 2.51), a property can qualify as a taxpayer’s principal residence for up to four tax years prior to a change in use covered by a subsection 45(3) election, in lieu of fulfilling the ordinarily inhabited rule (discussed in ¶2.10 to 2.12) for these years.”

You cannot have had another principal residence during this period and you cannot have claimed any Capital Cost Allowance (CCA) on the property.

I am not a tax professional so you should consult a tax professional for further advice. Hope this helps.

Edited post: I believe this would only apply if you lived for a period of time after changing from income producing to principal residence.
Last edited by Trituris on Jul 5th, 2020 1:25 pm, edited 1 time in total.
Deal Fanatic
Nov 22, 2015
5681 posts
5075 upvotes
Trituris wrote: 
Most of the replies above have not read the relevant information published by the CRA.

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

Have a look at section 2.54 to 2.56 in this link regarding subsection 45(3) election which can be filed at the time of selling the property. There is an example case there as well which is somewhat similar to yours.

“Similar to the treatment for a subsection 45(2) election (see ¶2.50 to 2.51), a property can qualify as a taxpayer’s principal residence for up to four tax years prior to a change in use covered by a subsection 45(3) election, in lieu of fulfilling the ordinarily inhabited rule (discussed in ¶2.10 to 2.12) for these years.”

You cannot have had another principal residence during this period and you cannot have claimed any Capital Cost Allowance (CCA) on the property.

I am not a tax professional so you should consult a tax professional for further advice. Hope this helps.
That section only applies if you make the election before you move out, and you are moving back in.

OP is selling the place so it's irrelevant
Newbie
Jul 4, 2003
27 posts
5 upvotes
Toronto
KanataKG wrote: That section only applies if you make the election before you move out, and you are moving back in.

OP is selling the place so it's irrelevant
Subsection 45(2) election and 45(3) are different elections and I think people are mixing them up. Subsection 45(2) election is filed before moving out and applies to the 4 years after the election is declared. Subsection 45(3) election is filed at the time of selling and applies to the 4 years prior to moving back in.

“The taxpayer may instead defer recognition of the gain to a later year by electing under subsection 45(3) that the above-mentioned deemed disposition and reacquisition under paragraph 45(1)(a) does not apply. This election is made by means of a letter to that effect signed by the taxpayer and filed with the income tax return for the year in which the property is ultimately disposed of (or earlier if a formal demand for the election is issued by the CRA)“
Deal Addict
Mar 3, 2018
1591 posts
1554 upvotes
GTA
KanataKG wrote: That section only applies if you make the election before you move out, and you are moving back in.

OP is selling the place so it's irrelevant
Thinking though that a late filed 45(2) election would work. Assuming no CCA claimed and the OP did not have another principal residence.
Member
Jul 15, 2019
363 posts
253 upvotes
Trituris wrote: 
Most of the replies above have not read the relevant information published by the CRA.

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

Have a look at section 2.54 to 2.56 in this link regarding subsection 45(3) election which can be filed at the time of selling the property. There is an example case there as well which is somewhat similar to yours.

“Similar to the treatment for a subsection 45(2) election (see ¶2.50 to 2.51), a property can qualify as a taxpayer’s principal residence for up to four tax years prior to a change in use covered by a subsection 45(3) election, in lieu of fulfilling the ordinarily inhabited rule (discussed in ¶2.10 to 2.12) for these years.”

You cannot have had another principal residence during this period and you cannot have claimed any Capital Cost Allowance (CCA) on the property.

I am not a tax professional so you should consult a tax professional for further advice. Hope this helps.
As an accountant I can tell you this section cannot be applied... he has never lived in the house, it has been a rental property since the moment he purchase it, he most certainly cannot claim the principal residence exemption and has been a full income producing property during the lifetime of his ownership of the property.
Newbie
Jul 4, 2003
27 posts
5 upvotes
Toronto
freeman93 wrote: As an accountant I can tell you this section cannot be applied... he has never lived in the house, it has been a rental property since the moment he purchase it, he most certainly cannot claim the principal residence exemption and has been a full income producing property during the lifetime of his ownership of the property.
I should have added that I was assuming he would live in the property for a period of time prior to selling. If that occurred, it would match the example given by the CRA, is that correct? But I agree, if he never lived in the house at all, this would not count. I missed pointing that out.
Member
Jul 15, 2019
363 posts
253 upvotes
Trituris wrote: I should have added that I was assuming he would live in the property for a period of time prior to selling. If that occurred, it would match the example given by the CRA, is that correct? But I agree, if he never lived in the house at all, this would not count. I missed pointing that out.
Yes, if he moves into the property you are right, and never claimed CCA.. they could claim this exemption. However, IMO they would get challenged by the CRA on this and they would have to prove principal residency. Therefore, they would have to actually move in there and live there for a good while. Change their driver's license, change over utilities, mailing addresses... it's not as simple as just claiming it as a principal residence, especially as they have had it as an income-producing property for this long.

I'd say he is safer just paying the capital gains tax here.

Edit: just to add, these are cases that CRA challenges often... so it's not just the luck of the draw on getting audited here.
Member
Jun 15, 2015
229 posts
273 upvotes
Thornhill, ON
ontariobrent wrote: Looking at selling a house. Bought july 2016. Was bought for myself to live in. My work transfer didn’t happen so I rented it out in sept 2016- current.
I have no other principle residence.
Do I pay capital gains on the sale or can I still claim principle residence exception?
I have researched and been told both answers.
Thanks
What happened between July 2016 and September 2016? Did you live in the house? If not, then it was not your principal residence. The s45 election would not apply as there was no change in use (i.e. from principal residence to rental).

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