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Rental Suite

ImageBe clear on what you are doing when you make stuctural changes to your principal residence to create a rental suite.

Realize that, if you deduct Capital cost allowance (CCA) on the property, you are changing the use of part of your principal residence into capital property. This means that when you sell this property you will pay tax on any capital gains made on that part of the property which is used as a rental suite.

Although part of your principal residence is rented, and you declare the rental income every year, you can avoid converting part of your principal residence into capital property, as long as you meet all the following conditions.

As per Canada Revenue Agency:

You are not considered to have changed it's use if you meet all of the following:

  1. Rental use is relatively small in relation to the use as a principal res idence.

  2. You do not make any structural changes to make it rental property.

  3. You do not deduct any CCA on the part you use for rental.

If you meet all the above all of your property can continue to be your principal residence for tax purposes.

Renting a suite in your principal residence can be a good idea but be careful not to change part of your principal residence into Capital Property unless you clearly want to do that.

Pat


Definition:

Capital Property
Generally, depreciable property and property in relation to which a gain or loss on disposition of the property would be a capital gain or a capital loss. Capital property may be any kind of property but does not include inventory of a business.

 
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