Sale of rental suite

Tuffy1973 · ‎March 10, 2023

I have a client who built a house with a suite in it 30 years ago. Her parents were going to move into the suite, but that never happened. She started renting out the suite to help with the mortgage and has never claimed CCA on it. She just recently sold the suite to her daughter, but still owns and lives in the rest of the house. I am unsure how to claim this sale. I understand it the rental suite does not take away from the principle residence exemption as it is less than 50% of the house and no CCA was claimed. Would I claim this as the sale of the principle residence even though she still owns part of it?

JRBooks1 · ‎March 10, 2023

Hello, Tuffy

So your client bought a property with a suite many years ago. How is the property set up? If it's a basement suite and the three conditions are satisfied (no CCA, no structural renos to create suite, rental portion 'incidental' to her enjoyment of the property - for a basement suite generally take a maximum of 40% of dwelling), then the whole property would be considered her principal residence. So had she sold the whole place, you would just have filled out the principal residence disposition forms and that would be that.

However, it appears she has sold a portion of the principal residence to her daughter. You will need to find out just how that works with respect to the title deed for the property. If the daughter is now on title and is actually paying Mum for the portion of the property occupied by the suite, then I think you could make a case that a partial disposition of a principal residence has occurred and fill out the relevant forms.

Where there could be an issue is if - over the years - your client has said the rental suite was more than 40% of the property when claiming expenses such as property tax, etc. I've seen people claim up to 50% as rental, but have discouraged it as that could put them offside with CRA with respect to claiming principal residence.

Would like more information if possible.

Hope this helps.

Jo

Tuffy1973 · ‎March 10, 2023

Thank you so much for your reply. The rental suite is about 35% of the total area of the house. She did rent out a couple of rooms in the area of the house she lives in for a couple of years after her husband passed away without any life insurance. In order to make ends meet she needed the extra income, and for these years she did claim 50% of the water, property taxes, etc, but for the years of just the rental suite income (which is the majority of the years) it has been 35% of those expenses. The daughter has purchased the suite portion of the house, and I believe that she is on the title, but I will double check. If if does fit into a partial disposition of the principle residence, do I just report it the same as if she disposed of the full property, or is there a way to show it is a partial disposition of the primary residence?

JRBooks1 · ‎March 10, 2023

It is my understanding there can be a partial disposition, particularly under the circumstances you have mentioned. I know the Principal Residence detail allows for a percentage reported by taxpayer, but don't know if that will cause problems.