Short answer
Potentially. A subsection 45(3) election may defer the deemed disposition when an income-producing property becomes a principal residence, but prior CCA claims can make the election unavailable.
The homeowner’s practical concern
An investor moves into a rental property and assumes the tax history resets simply because it is now the family home.
What the official rule says
CRA’s principal-residence folio describes the deemed disposition at fair market value and the election that may defer recognition. It also states that CCA allowed in relevant prior years can nullify the election.
What this does not guarantee
Deferral is not forgiveness. The years that can ultimately be designated, another family residence, residency and prior income reporting still affect the eventual gain.
A practical Ontario example
Illustration only: An owner rents a condo for four years, claims building depreciation, then moves in. The prior CCA may prevent the election that the owner expected to use.
What to check before changing the property or mortgage
Have the accountant review every T776 and CCA schedule before changing use. Keep a valuation at move-in and coordinate any refinance with the actual source and intended use of funds.
- How has the property actually been used each year?
- Was CCA claimed, and was any section 45 election filed?
- What was the property’s fair market value when its use changed?
- Where will refinance proceeds go, and can every transfer be traced?
- Which point needs written tax or legal advice before funds move?
Rajiv’s broker perspective
A mortgage approval answers whether a lender will finance the borrower and property under that lender’s policy. It does not confirm a tax deduction, principal-residence exemption, election or municipal-tax exemption. Before refinancing, changing occupancy or building a suite, I would separate the mortgage objective from the tax assumption, preserve the money trail and compare A-lender, alternative/B, MIC or private options only after the real use and exit plan are clear.
Related: Mortgage Knowledge Centre · Real Estate Centre · Updates & Rules Centre
Planning a refinance, rental conversion or family suite?
Send Rajiv the property use, ownership, mortgage balance, proposed funds and future plan. He can pressure-test the financing and identify tax questions that should be confirmed before the structure becomes difficult to unwind.
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