Partial Capital Gains Exemption

RN93 · ‎April 12, 2023

Client owned property for 12 years, can only claim principal residence for the last 8 years. Since most of the capital gains incurred over the last few years, is it acceptable to adjust the 2015 return (8 years ago) to claim a deemed disposition (for change of use) using an opinion of value for that time?

Or is the only acceptable way to use the exemption formula which effectively assumes straight line capital gain appreciation.

janisbossenberry · ‎April 12, 2023

Unless you claimed an exemption from the change in use rules by filing an election under ITA 45(2), then the property was deemed to have been disposed of at the time of the change in use. ITA 45(1) deems the change in use to have occurred at FMV. If you did make the election under ITA 45(2) then you would have to look to see if you could rescind it retroactively. I do not think they would accept that.

Did you put the building on the CCA schedule for the rental? If you did, did you use the FMV at the time of the change in use?

RN93 · ‎April 12, 2023

The change in use went from 2nd home (non-income producing) to principal residence (they sold another property in 2015 that they claimed the principal residence exemption). The client sold the subject property last year. Would I be able to claim 45 (2) election with the 2022 return and obtain an opinion of value for the property as of 2015 to calculate the applicable capital gains? Then override Profile to not calculate a capital gain using the principal residence exemption formula?

RN93 · ‎April 18, 2023

The change in use went from 2nd home (non-income producing) to principal residence (they sold another property in 2015 that they claimed the principal residence exemption). The client sold the subject property last year. Would I be able to claim 45 (2) election with the 2022 return and obtain an opinion of value for the property as of 2015 to calculate the applicable capital gains? Then override Profile to not calculate a capital gain using the principal residence exemption formula?

janisbossenberry · ‎April 18, 2023

Sorry, the 45(2) election is only available when there is a change in use. That is defined as going from non-income producing to income producing. It is not available at all if they simply had 2 residences. They can only claim the principal residence on one property at a time and there is no way to record a deemed disposition at FMV unless there was a change in use as defined under the act.

I apologize for the delay in responding. I tried to respond from my cell the other day, it didn't work, then I forgot about you!

ProFile Duncan · ‎May 02, 2023

Hi,

Those interested in more information on the section 45(2) election can find it here

RN93 · ‎May 03, 2023

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