Short answer
Potentially. A subsection 45(2) election can defer the deemed disposition that normally occurs when a principal residence becomes an income-producing property, but conditions and future consequences matter.
The homeowner’s practical concern
An owner moves out, rents the home and refinances it without recording fair market value or telling the accountant that the property’s use changed.
What the official rule says
CRA explains that a valid election can avoid reporting the change-of-use capital gain at that time. Rental income and eligible expenses must still be reported, and CCA generally cannot be claimed while the election applies.
What this does not guarantee
The election does not make rental income tax-free or guarantee full principal-residence exemption later. Another property’s designation and Canadian-residency years can affect the final result.
A practical Ontario example
Illustration only: A homeowner keeps the former residence as a rental for three years. An election may defer the deemed sale, but claiming CCA or designating a different home for the same years can alter the strategy.
What to check before changing the property or mortgage
Obtain a defensible market valuation on the conversion date and tax advice before filing. Tell the mortgage broker whether the new financing is for the former home, the replacement home or another investment.
- 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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