Changes in use
When there is a change in use of a property you have, you may be considered to have sold all or part of your property even though you did not actually sell it. The following are some sample situations:
- You change all or part of your principal residence to a rental or business operation
- You change your rental or business operation to a principal residence
Every time you change the use of a property, you are considered to have sold the property at its fair market value and to have immediately reacquired the property for the same amount. You have to report the resulting capital gain or loss (in certain situations) in the year the change of use occurs.
If the property was your principal residence for any year you owned it before you changed its use, you do not have to pay tax on any gain that relates to those years. You only have to report the gain that relates to the years your home was not your principal residence.
If you were using the property to earn or produce income before you changed its use, see Real estate, depreciable property, and other properties for information on how to report any capital gain or loss.
In certain situations, the rules stated above for changes in use do not apply. The following are some of the more common situations:
- Changing all your principal residence to a rental or business property
- Changing your rental or business property to a principal residence
- Changing part of your principal residence to a rental or business property
For the changes in use of property, such as multi-unit residential property, that occur after March 18, 2019, Budget 2019 proposes to allow a taxpayer to elect that a deemed disposition that normally arises on a change in use of part of a property, not apply.
Completing your Schedule 3
For information on how to calculate and report the gain, if any, see Sale of your principal residence.
Forms and publications
- Guide T4037, Capital Gains
- Guide T4002, Self-employed Business, Professional, Commission, Farming, and Fishing Income
- Guide T4036, Rental Income
- 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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