If you turn your principal residence to an income property, how do you calculate capital gains tax in Canada?

Question

If I'm moving to a new principal residence and want to keep my current condo as an income property and eventually sell the income property, does the capital gains tax get calculated from when I bought the place or when it became an income property?

Answer 1

The answer given by my16paws is essentially correct. When the rental operation starts, you are deemed to have sold the condominium to the rental operation at its current market value. Get it appraised. Report the value of the condo in Area C of the Statement of Real Estate Rentals (Form T776).

If and when you eventually sell the condo, you will need to include a copy of Form T2091 with your return for that year so that you can designate the property as your principle residence for the years you lived in it.

In the first answer, it gives reference to an election that can be made under subsection 45(2) of the Income Tax Act. This only applies if you don't own another residence, and if you move at least forty kilometers away due to being transferred by your employer.

Answer 2

Yes, you will be paying capital gains taxes on the value of the proceeds when you sell the condo minus the adjusted cost base (ACB) of when you change the use from personal to business use.

Answer 3

The Capital Gain tax would be calculated from the date of the change of usage.  You need to get the Condo appraised as at the date you have changed it's usage.  This year on your Tax return you could show the Deemed disposition of your Condo (Tax Free as it was your Principal Residence).  The Deemed selling price (appraisal value), becomes the ACB (Adjusted Cost Base) of the rental property.  When you sell the Condo you use that value.

Example

You Purchase the Condo for 100,000

When you change the Condo from Principal Residence to Rental Property value is 250,000.

In the future when you sell the Condo its value is 350,000.

When you changed the property from Principle residence to Rental Property this your the gain is

250,000-100,000 = 150,000 Gain (TAX FREE Principle residence rule)

Capital Gain on the Final Sale would be 350,000-250,000 = 100,000

Answer 4

If you buy a property for 100k for personal use

then start using for business purpose when its worth 200k

Then later you sell it for 300k

then your gain would be 300-200=100k

this 100k is your capital gain, however taxable capital gain is 50% of this amount so it would be 50,000. You would be liable to pay taxes on 50k.

Cheers

;)

Answer 5

The capital gains cover those years when your condo is rented out (condo deemed sold at fair mkt value on date rented out, until condo sold later).  

However, a principal residence that was subsequently converted to a rental or other income producing property can still be designated as a principal residence for a period of up to four years subsequent to the conversion provided that no capital cost allowance was claimed on the property during this period. The owner must also file an election with the Canada Revenue Agency. The four year period can be extended indefinitely if the owner or the owner's spouse is required to relocate due to changes in their employment location with their employer.