Changing part of your principal residence to a rental or business property
You are usually considered to have changed the use of part of your principal residence when you start to use that part for rental or business purposes.
However, you are not considered to have changed its use if:
- your rental or business use of the property is relatively small in relation to its use as your principal residence;
- you do not make any structural changes to the property to make it more suitable for rental or business purposes; and
- you do not deduct any CCA on the part you are using for rental or business purposes.
If you meet all of the above conditions, the whole property may qualify as your principal residence, even though you are using part of it for rental or business purposes.
However, if you do not meet all of the above conditions, when you actually sell the property you have to:
- split the selling price between the part you used for your principal residence and the part you used for rental or business purposes. We will accept a split based on square metres or the number of rooms as long as the split is reasonable; and
- report any capital gain on the part you used for rental or business purposes. For more information, see Real estate, depreciable property, and other properties. You do not have to report any capital gain for the part you used for your principal residence.
You cannot file an election under subsection 45(2) of the Income Tax Act, if there is only a partial change in use of a property.
Forms and publications
- Guide T4002, Business and Professional Income
- Guide T4036, Rental Income
- Guide T4037, Capital Gains
- Form T1255, Designation of a Property as a Principal Residence by the Legal Representative of a Deceased Individual
- Form T2091(IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust)
- Form T2091(IND)-WS, Principal Residence Worksheet
- Income Tax Folio S1-F3-C2, Principal Residence
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