Real Estate

Question on condo rental and tax implications

  • Last Updated:
  • Jan 22nd, 2020 3:23 pm
[OP]
Deal Addict
Jan 26, 2016
1517 posts
1306 upvotes
Toronto, ON

Question on condo rental and tax implications

Hello,

Situation:

-Purchased condo as principle residence in 2016. Been living there since then.
-Condo has appreciated in the 3 years
-Want to rent out now, to move in with girl friend

I understand I will be charged the condo appreciation as income if used for rental. But how do I go about minimizing this, espcially since I lived there for past 3 years and a large chunk of increase in appreciation occurred during this period?

How would future value increases be treated by CRA?
7 replies
Member
Oct 26, 2007
286 posts
159 upvotes
You only pay tax on the gain from the time it ceases to be your principal residence. You do not pay tax on the gain which occurred during the time it was your principal residence. When you file your taxes for the year it became a rental property, you report it as a deemed sale. Example

Purchase price / ACB: 300,000
Value before renting: 500,000
Deemed sale gain: 200,000 tax free
Future value when sold: 600,000
Capital gain: 100,000 x 50% = $50,000 taxable capital gain

To minimize tax, you want to report the current value as high possible (to offset potential future gains), you can put whatever amount you want, but if CRA questions then you'll need backup, so get a market valuation done and tell them to be as generous with the current value as possible.
Last edited by negotiater on Jan 21st, 2020 11:41 am, edited 1 time in total.
[OP]
Deal Addict
Jan 26, 2016
1517 posts
1306 upvotes
Toronto, ON
negotiater wrote: You only pay tax on the gain from the time it ceases to be your principal residence. You do not pay tax on the gain which occurred during the time it was your principal residence. When you file your taxes for the year it became a rental property, you report it as a deemed sale. Example

Purchase price / ACB: 300,000
Value before renting: 500,000
Deemed sale gain: 200,000 tax free
Future value when sold: 600,000
Gain on which tax is payable 100,000

To minimize tax, you want to report the current value as high possible (to offset potential future gains), you can put whatever amount you want, but if CRA questions then you'll need backup, so get a market valuation done and tell them to be as generous with the current value as possible.
Thanks!

So what is deemed good evidence? Some letter from a realtor? Or a 3rd party appraiser?
Sr. Member
Feb 19, 2019
733 posts
749 upvotes
Stouffville ON
nx6288 wrote: how about never sell :)
This won't change anything as he is facing deemed disposition.
Full Time and Full Service Realtor
Sr. Member
Feb 19, 2019
733 posts
749 upvotes
Stouffville ON
WinterSleep wrote: Thanks!

So what is deemed good evidence? Some letter from a realtor? Or a 3rd party appraiser?
Since cra may never ask I don't think it makes sense to hire the appraiser at this point, if CRA does ask the appraiser can do historical valuation.
Ask your agent to prepare the CMA or do it yourself based on the recent comparable sales. Don't pull numbers out of a thin air to minimize the tax on capital gains.
Full Time and Full Service Realtor
Sr. Member
Feb 19, 2019
733 posts
749 upvotes
Stouffville ON
yang wrote: Can also keep your condo as your principle residence for up to 4 years, even while renting it out. Let the condo continue to appreciate tax free a bit longer. Assuming you believe it will continue to appreciate.

https://www.canada.ca/en/revenue-agency ... perty.html
OP didn't explain enough to suggest this is an option for him, he is moving in with GF so there may be a principal residence issue.
Full Time and Full Service Realtor

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