Personal Finance

primary house for living issue

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  • Mar 1st, 2006 10:45 pm
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[OP]
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Jun 22, 2005
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primary house for living issue

as i am living single now, i had bought and moving into my 1st owned house by next month, so that is my primary house for living and i will be living solely in basement and planned to rent the 1st and 2nd floor for a family...

what are the advantages/disadvantages when i file for the income tax return?
any thing should i consider???
faizal :lol:
21 replies
Deal Addict
Aug 12, 2005
1682 posts
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Mississauga
Does that still count as your "primary residence" because you are renting out 2/3 of your house??
[OP]
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Jun 22, 2005
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ayeung wrote:Does that still count as your "primary residence" because you are renting out 2/3 of your house??
its good question..i guess it is because i am living in it, right? correct me if i m wrong..
faizal :lol:
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Aug 2, 2001
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faizalm wrote:its good question..i guess it is because i am living in it, right? correct me if i m wrong..
I would say that the CCRA would be against claiming 2/3's as rental income. Below is a quote from their website, on when a portion of your principal residence converts the rental property.

Now, I would say at using 1/3 for personal and 2/3 for rental is "relatively small". You could always do a safe number, like 50%. That should fit within their guidelines.

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.



Good luck - you're wandering into a grey area if you try to rent out a large portion of your personal residence for the tax benefits.
[OP]
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Jun 22, 2005
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TrevorK wrote:I would say that the CCRA would be against claiming 2/3's as rental income. Below is a quote from their website, on when a portion of your principal residence converts the rental property.

Now, I would say at using 1/3 for personal and 2/3 for rental is "relatively small". You could always do a safe number, like 50%. That should fit within their guidelines.

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.



Good luck - you're wandering into a grey area if you try to rent out a large portion of your personal residence for the tax benefits.
what if i say 50% of the house is rented out...
what are the advantages/disadvantages to me?
faizal :lol:
Newbie
Nov 17, 2003
41 posts
Just use the house as an investment property and you treated the rental income as a business income and in that way, you can save a lot of income tax. the only thing is not good is that you must pay the tax for the profits you got when you sell the house. This is a good way to reduce the income tax if you don't want to sell the house in the near future.
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Aug 2, 2001
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faizalm wrote:what if i say 50% of the house is rented out...
what are the advantages/disadvantages to me?
You are able to claim deductions based on many things to do with the rental portion of the house - property tax, insurance, utilities, interest on mortgage, etc....
Member
Apr 4, 2003
291 posts
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TrevorK wrote:You are able to claim deductions based on many things to do with the rental portion of the house - property tax, insurance, utilities, interest on mortgage, etc....
so if my sister is living with me and pay me $xxx amount for rent/food, should I claim it so I can claim the loss against my primary income? (It's in fact a loss if I take interest, fees and tax into consideration).
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Aug 2, 2001
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shinichi wrote:so if my sister is living with me and pay me $xxx amount for rent/food, should I claim it so I can claim the loss against my primary income? (It's in fact a loss if I take interest, fees and tax into consideration).
If your sister is living with you you must claim her rent as additional income.

At that point, you can then start making deductions for interest on mortgage, taxes, etc... for the percentage of the house that is rented out.


Then between those two numbers, you'll either pay extra income tax or get income tax already paid back.

Now remember, the CCRA also has a clause that the rent must be for fair market value, you can't give a family member a break.
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Aug 19, 2001
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There is no problem with renting out even 2/3rds of your primary residence. Capital gains will still be exempt when you sell. This was tested in court (Saccomano case) when a fellow owned a triplex and rented out 2 of the suites.

About the only time property you live in is not considered primary residence:
1) you have declared ANOTHER primary residence for that year
2) the property is particularly large (eg., a farm) and therefore only the portion necessary to live on is the primary residence.

As for taxes, you will have to declare all the rent you collect as income. You can deduct 2/3rds (or whatever proportion of the house is rented) of your mortgage interest/taxes/insurance from this income, as well as utilities should you include them in the rent. Other expenses directly related to renting are also deductible (repairs, advertising) but NOT big purchases like a new fridge.

Make sure to calculate your numbers beforehand. although you can get away with claiming a business loss for several years (should the expenses exceed rent) ... you had better be able to prove a reasonable expectation of profit. i.e., if you buy a $2,000,000 mansion and plan to rent rooms for $500/mo and declare the losses, be ready for re-assessment since such an arrangement obviously will never make a profit!

Smbuyer seems to be implying you should claim CCA on your property. He is mistaken this will save you money... you can only claim 4% of the BUILDING value per year, and all of that is reclaimed when you sell anyways, so it's nothing more than a tiny interest-free loan.

Do not claim CCA on your principal residence! It likely will spoil your exemption when you sell.

If you rent a suite to your sister at below-market value, and this results in a loss, you cannot deduct this loss against your other income. A loss is only deductible if there is a reasonable expectation of profit... and you do not have such an expectation when you are subsidizing your family member!

However if you subsidize your sister and still generate a profit, you must declare that profit as income of course.

...
As you can see there is a lot of misinformation in this thread. Even the CRA website promotes ideas that will not stand up in court. Also you are obviously very ignorant in this area.

Get yourself to a TAX accountant and pay them $80 for a consultation so they can explain everything to you. That way you will be confident and avoid surprises.
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Aug 2, 2001
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grant wrote:There is no problem with renting out even 2/3rds of your primary residence. Capital gains will still be exempt when you sell. This was tested in court (Saccomano case) when a fellow owned a triplex and rented out 2 of the suites.
The cost of a lawyer to fight this would be more than the deductions are worth. The CCRA doesnt set the law - they interpret it. And I'm sure that if they audit the poster for renting out 2/3's they'll re-evaluate him.

Once you go to court and overturn the judgement you are still out the lawyer fees.
Member
Apr 4, 2003
291 posts
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TrevorK wrote:If your sister is living with you you must claim her rent as additional income.

At that point, you can then start making deductions for interest on mortgage, taxes, etc... for the percentage of the house that is rented out.


Then between those two numbers, you'll either pay extra income tax or get income tax already paid back.

Now remember, the CCRA also has a clause that the rent must be for fair market value, you can't give a family member a break.
so is it simpler to just not claim it because she basically just pays for the cost of foods + hydro?
If I claim it higher as market value, then would it be a fraud since I claim to receive higher income than I am getting?
[OP]
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Jun 22, 2005
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shinichi wrote:so is it simpler to just not claim it because she basically just pays for the cost of foods + hydro?
If I claim it higher as market value, then would it be a fraud since I claim to receive higher income than I am getting?
question... when ur sister files for income tax return, she will have mention where she lives and how much rent value etc... right... whan happens then...

my situation is...
- i am going to be the sole owner of a town house and its my primary residence aswell
- i am getting a family to rent over my house (2/3 floors) for longer period of time
- whats is the best suggestions that you (RFDers) can provide me?
- what is leasing the house mean? any advantages/disadvantages of doing that?
- what if i move out of province for period of time, like a 6-12months time due to job relocation??
faizal :lol:
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Aug 2, 2001
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shinichi wrote:so is it simpler to just not claim it because she basically just pays for the cost of foods + hydro?
If I claim it higher as market value, then would it be a fraud since I claim to receive higher income than I am getting?
If she is paying for the cost of foods + hydro then you would not need to claim her rent because:
Renting below fair market value

You can deduct your expenses only if you incur them to earn income. In certain cases, you may ask your son or daughter, or another relative living with you, to pay a small amount for the upkeep of your house or to cover the cost of groceries. You do not report this amount in your income, and you cannot claim rental expenses. This is, in fact, a cost-sharing arrangement, so you cannot claim a rental loss.

If you lose money because you are renting a property to a relative for a lower rate than you would rent it to other tenants, you cannot claim a rental loss. When your rental expenses are consistently more than your rental income, you may not be allowed to claim a rental loss because your rental operation is not considered to be a source of income. However, you can claim a rental loss if you are renting the property to a relative for the same rate as you would charge other tenants and you reasonably expect to make a profit.
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Aug 19, 2001
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Vancouver
TrevorK wrote:The cost of a lawyer to fight this would be more than the deductions are worth. The CCRA doesnt set the law - they interpret it. And I'm sure that if they audit the poster for renting out 2/3's they'll re-evaluate him.

Once you go to court and overturn the judgement you are still out the lawyer fees.
- Are you a tax accountant?
- Do you set CRA policy?
- Have you ever been reassessed by the CRA for claiming a triplex as a principal residence?

Unless you answered "yes" to any of these questions, you have no basis to say you're "sure" a claimant will be reassessed in this situation.

I imagine you're "sure" simply because you read something on their web page. As you may be aware, what you quoted is not tax law or even an official bulletin regarding their interpretation of tax law. (edit: the clue is the vague term "relatively small" .. official interpretation needs concrete guidelines.)

The fact is, the courts rules on this situation 20 years ago, and for 20 years, people have claimed 2/3rds rented triplexes as principal residences without further court challenges.

The CRA may interpret law, but in the end they must bow to the courts which ALSO interpret tax law. The CRA is not interested in going to court when they know they will lose.

(Also bear in mind it's not mandatory to retain a lawyer to challenge the CRA in court, and even if you do, the typical costs of a few thousand dollars could easily be much smaller than the value of capital gains exemption on a much appreciated property.)

If you or anyone is scared about claiming your maximum legal deductions, then definitely obtain the services of an expert tax accountant. For only a few hundred dollars they will clarify everything for you, and, if the CRA audits or challenges you, they will typically prepare and present your defence for free. (ask ahead of course).

Here in Vancouver I have used David Ingram.

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