Renting Out Your Home in Ontario: What Happens With Capital Gains?

Short answer: when you move out of your Toronto, Hamilton or other Ontario home and start renting it out, Canadian tax rules generally treat it as if you sold it and bought it back at fair market value on that date. This is called a change of use, and the home's value on that day matters for years afterwards.

What Is a Change of Use?

A change of use happens when a property switches from personal use to income-producing use, or the other way around. The most common example is moving out of your home and renting the whole place to a tenant, perhaps because you bought a new home, moved in with a partner or relocated for work.

Under the Income Tax Act, a change of use is usually treated as a deemed disposition: you are considered to have sold the home at fair market value and immediately reacquired it at that same value.

Does Renting Out My Home Trigger Capital Gains?

Technically, yes, but there is often no tax to pay right away. If the home was your principal residence for every year you owned it up to the change, the principal residence exemption generally covers the gain up to that date.

The bigger effect is on the future. The fair market value on the change-of-use date becomes your new cost. When you eventually sell the rental, your taxable gain is usually measured from that value, not from what you originally paid. A well-supported number protects you here.

What Is the 45(2) Election?

Section 45(2) of the Income Tax Act lets many owners elect to defer the deemed capital-gains disposition. The election may also let you keep designating the home as your principal residence for up to four additional years after you start renting it, subject to conditions, such as not designating another property for those years. Your accountant can confirm whether you qualify.

• The election is usually made by attaching a letter to your tax return for the year the use changed.
• You generally can't claim capital cost allowance (depreciation) on the home while the election is in effect.
• Longer periods may be possible in some work-relocation situations.

Whether the election makes sense depends on your plans and your other properties, so it's a conversation to have with your accountant.

What About Renting Out Part of Your Home?

Renting a basement apartment or a room is treated differently. CRA has generally said there is no change of use when the rental part is small relative to the whole home, no significant structural changes are made and no capital cost allowance is claimed. If any of those don't apply, part of the home may be treated as a change of use. Your accountant can tell you where you stand.

Why the Value on the Change Date Matters

The change-of-use value does two jobs. It marks the end of the gain sheltered by the principal residence exemption, and it sets the starting point for the taxable gain on the rental. If the value is too low, you may pay more tax when you sell. If it is too high and unsupported, CRA may question it.

A certified capital gains appraisal documents the fair market value on the exact date, prepared by a designated appraiser to the Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP). It explains which sales were used and why, so your accountant has something solid on file.

Already renting for a few years?

That's common. A retrospective appraisal can value the home as of the past change-of-use date, using sales and market conditions from that time.

How Much Does a Change-of-Use Appraisal Cost?

If you're changing the use now, the appraisal values the home as of today: at Best Home Value, fees start at $370 for a condo or townhouse, $475 for a detached or semi-detached house and $700 for a 2–4 unit property. If the change happened in the past, it's a retrospective appraisal, starting at $470, $575 and $800. Your exact fee is confirmed in writing within one business day, before anything is booked. See our full fee table.

How long does it take?

Most reports are delivered as a signed PDF within 2–3 business days of the inspection, ready to share with your accountant.

Related Articles

• The principal residence exemption, explained simply
• Can I get an appraisal for a past date for CRA?
• Selling an inherited home: what about capital gains?

This article is general information, not tax, legal or financial advice. Please speak with your accountant, lawyer or lender about your situation.