If I rent out part of my home while still living in it, are there any tax consequences?
Allan Madan, CA
If while living in your home (referred to as a principal residence) you rent out a part of it, there will be tax consequences. For tax purposes, when a principal residence is turned into a rental property, a change-in-use for tax purposes has occurred. A change-in-use means that the house will be considered to have been sold at the fair market value at the time the change was made. However, things are a little bit different for partial changes in use.
No tax consequences will occur if all of the following have been met:
a) the portion of the house being rented isn’t a substantial amount,
b) there is no structural change to the house (separate entrances, among others, etc.),
c) no depreciation (CCA) is claimed on the house.
If the answer to any of the above question is ‘yes’, then there will be tax consequences, which usually won’t take form until the house is sold later on (or until another change in use occurs). This consequence will take the form of a capital gain.
The second, and the more obvious tax implication is that the rental income earned on the home must be reported. There is no out-of-the-box solution for things like a change in use, so please do consult an accountant!
Disclaimer
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.
ABOUT THE AUTHOR
ALLAN MADAN
CA.CPA.CGA
Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.
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