Changing your principal residence to a rental property
When you change your principal residence to a rental property, you can make an election not to be considered as having started to use your principal residence as a rental property. This means you do not have to report any capital gain when you change its use. If you make this election:
you have to report the net rental income you earn; and
you cannot claim capital cost allowance (CCA) on the property.
While your election is in effect, you can designate the property as your principal residence for up to four years, even if you do not use your property as your principal residence. However, you can only do this if you do not designate any other property as your principal residence for this time.
You can extend the four-year limit indefinitely if all the following conditions are met:
you live away from your principal residence because your employer, or your spouse's or common-law partner's employer, wants you to relocate;
you and your spouse or common-law partner are not related to the employer;
you return to your original home while you or your spouse or common-law partner are still with the same employer or before the end of the year after the year in which this employment ends, or you die during the term of employment; and
your original home is at least 40 kilometres (by the shortest public route) farther than your temporary residence from your or your spouse's or common-law partner's new place of employment.
If you make this election, there is no immediate effect on your tax situation when you move back into your residence. However, if you change the use of the property again and do not make this election again, any gain you have from selling the property may be subject to tax.
To make this election, you have to file a letter signed by you with your income tax return. The letter should describe the property and state that you are making an election under subsection 45(2) of the Income Tax Act.