Changing all your rental or business property to a principal residence

When you change your rental or business property to a principal residence, you can elect to postpone reporting the disposition of your property until you actually sell it. However, you cannot make this election if you, your spouse or common-law partner, or a trust under which you or your spouse or common law partner is a beneficiary has deducted CCA on the property for any tax year after 1984, and on or before the day you change its use.

This election only applies to a capital gain. If you claimed CCA on the property before 1985, you have to include any recapture of CCA in your business or rental income. Include the income in the year you changed the use of the property. If you need more information on the recapture of CCA, see Guide T4002, Self-employed Business, Professional, Commission, Farming, and Fishing Income, or Guide T4036, Rental Income.

If you make this election, you can designate the property as your principal residence for up to 4 years before you actually occupy it as your principal residence.

To make this election, attach to your income tax and benefit return a letter signed by you. Describe the property and state that you want subsection 45(3) of the Income Tax Act to apply. You have to make this election by the earliest of the following dates:

  • 90 days after the date the CRA asks you to make the election
  • the date you are required to file your income tax and benefit return for the year in which you actually sell the property
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