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12 Feb

Rental Property Tax Planning: Conversion of home to rental status

Income Tax

Posted by: Garth Chapman

More and more often in the last decade or so when Canadians buy or build a new home they have been electing to keep their existing home and convert it to a rental property. Now not all homes make good rental properties, either for economic reasons or due to location or property type, but in many cases this can be an excellent way to further one’s financial independence goals, and/or retirement planning. A good rental property, once paid off, can often produce as much or more cash-flow as your CPP pension payments will generate. So one or two of these can make the difference between a frugal retirement and a rather more enjoyable one.

So for those thinking along those lines, there are a few key things to understand, so I have compiled a few good articles below to help with that.

You will first need to get a proper valuation of the property, as any gain up to the point of conversion to a rental, is tax free. As the below MoneySense article notes “…to convert one home into an income producing property by renting it out. You will trigger capital gains taxes but only from the time you started renting out the property to the time you actually dispose of the property. That’s because the CRA considers the change in the use of the property as a deemed disposition—tax talk for a change in use of a property is the equivalent as a sale at the current, fair market value.” Can you avoid capital gains tax?

CRA website re ‘Change Of Use’

On designating a principal residence

On Depreciation (CCA)

This one contains information on Renting Out A Portion Of Your Home

Good overview here

This article also discusses Terminal loss rules, meaning what you should look for if you sold at a capital loss.