You would also need to report the capital appreciation on your personal tax return the year that you move in. If you claim capital cost allowance on this property, you would have to take the recapture on the capital cost allowance into income the year you move in. We know that you would have reported income and expenses incurred on this Hamilton rental property for the 5 years. You decided that it is time to relocate and move to your rental property but you are worried about Capital Gains Tax. You bought your investment property, and then rented it out for 5 years.ĥ years later, you got a job offer in Hamilton. Maybe one day, you would move back to Hamilton, who knows? Your family lives in Hamilton, and it’s an easy commute for you.
And so, you venture out and decide to buy a property in your hometown Hamilton as investment property. However, Toronto housing prices have skyrocketed. You work in Toronto, currently renting a condo, making good money. Assuming you don’t have any other property designated as your primary residence during these 4 previous years. This election should also be filed together withĪs a bonus to this election, assuming you qualify, you can also designate this property as your primary residence for up to 4 years, before you actually occupy it as your principal residence.You cannot claim capital cost allowance on this property for any tax year after 1984 and on or before the day you change its use.In most cases, our clients are shocked by the unexpected tax bill. You’re required to report the $100K capital gain the year you move into your property.Īdditionally, you would also have to add the accumulated CCA (also known as recapture) that you’ve claimed over the years to your income in the year you move into the property. In this case, unfortunately the election is not available for you. You did this to offset some of the rental income from previous years. Say, you’ve claimed capital cost allowance on this property (CCA) against net rental income. Scenario 2: Capital cost allowance claimed If you have never claimed capital cost allowance against the rental income from prior years before you move into the property, you can elect to defer capital gain tax until you sell to pay with a 45(3) election. Scenario 1: No capital cost allowance claimed. Hence, making a capital gain of $100,000.Įven though you never sold the property, you may be triggering a gain of $100,000 on your tax return. In this case you’re deemed to have disposed of your property at $600,000. And then one day, you decide to move into it.Īt the time of moving in, your property is valued at $600,000. You buy a rental property worth $500,000.
Example of Capital Gains Tax on Rental Property: