Real Estate

Renting out a basement/room in a home, taxes when selling?

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  • Jul 18th, 2019 3:25 pm
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[OP]
Deal Addict
Jun 21, 2016
3099 posts
1058 upvotes

Renting out a basement/room in a home, taxes when selling?

If one were to rent out a room or a basement in a 2 story home, would this cause the property to be considered a rental property. And would you have to pay capital gain taxes when selling the property?
Or is the portion of the home rented too small to make the property considered a rental property?

Please advise

Also the owner will be living in the home as well
11 replies
Deal Addict
Sep 19, 2012
1018 posts
874 upvotes
Calgary
https://www.canada.ca/en/revenue-agency ... s-use.html

TL;DR: This won't be a significant change because your rental use is relatively small in relation to its use as your principal residence, you haven't made any structural changes to the property to make it more suitable for rental and you do not deduct any CCA on the property. So since not significant, you don't have a "change in use" and you continue with your principal residence exemption as is!
Nikola Alaica, CPA, CA | Tax, Accounting, Mortgages
[OP]
Deal Addict
Jun 21, 2016
3099 posts
1058 upvotes
Also anyone know a good accountant I can hire
Sr. Member
Feb 21, 2010
876 posts
249 upvotes
Scarborough
This is my understanding.

Calculate the sq footage of rental unit. Divide it by total sq footage.
Calculate the time for which rental is being offered. Divide it by the time house is owned.

So assume that 1/3rd of rental unit is offered for 3 years out of total 10 years of ownership, then principal residence capital tax exemption is for 9 years out of 10. This is assuming you do not claim CCA.
Deal Addict
Sep 19, 2012
1018 posts
874 upvotes
Calgary
romeocanada wrote: This is my understanding.

Calculate the sq footage of rental unit. Divide it by total sq footage.
Calculate the time for which rental is being offered. Divide it by the time house is owned.

So assume that 1/3rd of rental unit is offered for 3 years out of total 10 years of ownership, then principal residence capital tax exemption is for 9 years out of 10. This is assuming you do not claim CCA.
If no significant change in use (see my post above) you do nothing to your principle residence exemption. OP was just renting out a room - no issue. He still has to report income and pro-rata expenses, but when he sells there is no need to clawback any of the principal residence exemption.
Nikola Alaica, CPA, CA | Tax, Accounting, Mortgages
[OP]
Deal Addict
Jun 21, 2016
3099 posts
1058 upvotes
ahlaker wrote: If no significant change in use (see my post above) you do nothing to your principle residence exemption. OP was just renting out a room - no issue. He still has to report income and pro-rata expenses, but when he sells there is no need to clawback any of the principal residence exemption.
Can anyone confirm this is correct?
Deal Addict
Mar 3, 2018
1203 posts
941 upvotes
GTA
toronto19850 wrote: Can anyone confirm this is correct?
Yes this is correct. As long as you do not claim CCA (depreciation) on the building, it will remain exempt from capital gains tax. You will still need to report the rental income and expenses. But the partial rental of a home does not affect the principal residence exemption per CRA.
Sr. Member
May 12, 2003
801 posts
236 upvotes
If the basement apartment was build prior to you purchasing the property, then no tax consequences, since you haven't made any changes to the structure of the property and as long as you haven't taken CCA

But, if you had to make structural changes and then rent it out, there will be tax on the basement portion of the gain.

Consult an accountant
toronto19850 wrote: If one were to rent out a room or a basement in a 2 story home, would this cause the property to be considered a rental property. And would you have to pay capital gain taxes when selling the property?
Or is the portion of the home rented too small to make the property considered a rental property?

Please advise

Also the owner will be living in the home as well
[OP]
Deal Addict
Jun 21, 2016
3099 posts
1058 upvotes
ssj4_ootaku wrote: If the basement apartment was build prior to you purchasing the property, then no tax consequences, since you haven't made any changes to the structure of the property and as long as you haven't taken CCA

But, if you had to make structural changes and then rent it out, there will be tax on the basement portion of the gain.

Consult an accountant
There’s no basement apartment
Know any good accountants?
[OP]
Deal Addict
Jun 21, 2016
3099 posts
1058 upvotes
DaveTheDude wrote: Yes this is correct. As long as you do not claim CCA (depreciation) on the building, it will remain exempt from capital gains tax. You will still need to report the rental income and expenses. But the partial rental of a home does not affect the principal residence exemption per CRA.
Okay thank you!

Also, know any good accountants?

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