Principal residence exemption
Converting your home into a rental or business property does not automatically trigger a capital gain. Here is how the four-year election works, and what has to be true to extend it.
If you are looking to convert your place of residence into a business property, you have the option to keep it as a principal residence for tax purposes. There are many reasons individuals may opt for this. One specifically being to avoid reporting the possibility of a capital gain, which is otherwise required when changing the type of the property to a business property.
However, you will still be required to report your business or rental income, and you will not be able to deduct capital cost allowance (CCA) on the property.
This exemption is effective for up to four years after making the property a business property, as long as you are still a resident of Canada and you do not have any other properties considered as principal residences.
Extending the exemption past four years
Once these four years have passed, in order to maintain the exemption you must meet further qualifications:
- You do not live at your principal residence because your employer, or your partner's employer, wants you elsewhere.
- You and your partner are not related to your employer.
- You return to your original home while you or your partner are still with the same employer, or before the end of the year following the year in which that employment ends — or you die during the term of employment.
- Your original home is at least 40 kilometres farther from your, or your partner's, new place of employment than your temporary residence is.
Changing all your principal residence to a rental or business property — Canada.ca
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