🇨🇦 Canada · 5 min read · Published 2026-09-07 · Updated 2026-09-07

Written by Jordan Reeves · Editorial review: automated source and figure checks (how we check this)

Sources last verified: 2026-09-07

What Happens When I Rent Out My Home?

You are treated as having sold it at fair market value and immediately reacquired it, which realises any accrued gain. Because the property was your principal residence, the exemption usually shelters that gain, but the reset establishes a new cost base for everything that happens afterward.

60-SECOND ANSWER

Converting a home to a rental is a deemed disposition at fair market value, and an election can defer it for up to four years.

The answer:: The change of use is a deemed sale and reacquisition at fair market value on the date the use changes.
The trap:: Claiming capital cost allowance after making the deferral election. Doing so invalidates the election entirely.
The recommendation:: Get a documented valuation on the date of the change, because the new cost base has to be defensible years later.

Jump to the detail ↓

Where the AI summary above gets this wrong

"Renting out your home has no tax consequences until you sell it."

That's surface-true. Here's what it misses:

The conversion itself is a disposition — A change of use is a deemed sale at fair market value on that date, whether or not any money changes hands.
An election can defer it — A prescribed election lets you continue treating the property as a principal residence for up to four additional years.
Depreciation kills the election — Claiming capital cost allowance on the property after making the election invalidates it, which is the most common way it is lost.

→ See what a realised gain costs at your rate

01 What a change of use triggers

Converting a property from personal use to income-producing use, or the reverse, is a deemed disposition at fair market value followed by a deemed reacquisition at the same amount. It happens on the date the use changes, regardless of whether anything is sold.

Where the property was your principal residence throughout, the exemption normally shelters the gain to that date — the designation rules are in the principal residence exemption. Everything accruing after the change is a taxable gain on eventual sale.

Source: Principal residence and other real estate

02 The election that defers it

A prescribed election lets you treat the property as your principal residence for up to four years after the change of use, even though it is being rented. That defers the deemed disposition and preserves the designation for those years.

You cannot designate two properties for the same years, so making the election means the home you actually live in is unprotected for that period. Where both properties have accrued gains, that is a calculation rather than a formality.

WORKED EXAMPLE · Try the numbers

Shows: what a given amount of additional taxable income costs you in tax at your marginal rate, and what you keep. Ignores: provincial surtaxes, credits that phase out with income, and any effect on income-tested benefits.

Amount ($)

Your marginal rate (%)

What you keep after tax

$6,700

At a 33% marginal rate, $10,000 costs $3,300 in tax and leaves $6,700.

Source: Principal residence and other real estate

03 The condition people breach

The election is invalidated if capital cost allowance is claimed on the property. An accountant preparing the rental statement will often claim it as a matter of course, unaware that an election has been filed.

That is the most common way the deferral is lost, and it is entirely avoidable by flagging the election when the rental statement is prepared — the recapture consequences are in rental income in retirement.

The election is also available in the other direction, where a rental property becomes a principal residence. The conditions differ, and the deferral runs for a different period, but the underlying purpose is the same: the deemed disposition on the change of use can be postponed rather than accepted. Flagging the election in writing to whoever prepares the return, every year rather than only the first, is what stops the error happening long after everyone has forgotten about it.

Source: Capital gains (line 12700)

The valuation is the part that gets skipped and the part that matters. Nobody pays for an appraisal on a day they are not selling anything, and fifteen years later the entire calculation rests on what the property was worth on a date nobody documented.