Renting out a part of a principal home could limit the availability of the principal residence exemption (PRE)1 when a home is sold.
According to Jamie Golombek, "The tax rules state that if you change the use of a property, you are 'deemed' to have disposed of the property at its fair market value and to have immediately reacquired the property for the same amount."
Fortunately, if homeowners meet three conditions, the CRA will consider the home's use as unchanged:
- The rental use of the property is “ancillary” in relation to its use as a principal residence.
- No “structural changes” were made to the property.
- Tax depreciation was not deducted on the portion of the home rented.