The CRA Change-in-Use Trap: Moving Out of Your Markham Home and Turning It Into a Rental

Why Renting Out Your Home Counts as a Sale for Tax

Many Markham move-up families keep their first condo or townhouse and rent it out after buying a detached home. For tax purposes, the moment the property changes from personal use to earning rent, you are deemed to have sold it and reacquired it at its fair market value. That value becomes your new cost base for the rental.

If the home was your principal residence for every year you owned it, the principal residence exemption usually shelters the gain up to that date. The deemed sale still matters, because the value you record sets the starting point for any future taxable gain.

Michael John Lau, a REALTOR® with the Kaizen Real Estate Team, one of the most active real estate teams in Markham and York Region, encourages clients planning to keep their first home as a rental to speak with an accountant before they move, not after their first tax season as landlords.

How the Section 45(2) Election Works

Under subsection 45(2) of the Income Tax Act, you can elect to be treated as if the change in use never happened. The effects:

• No deemed sale at the date you start renting, so there is nothing to report then.
• The property can continue to qualify as your principal residence for up to four tax years while it is rented, as long as you remain a Canadian resident.
• The period can be longer in some cases where the move was caused by a job relocation and you later move back.

The election is generally made by attaching a letter to your tax return for the year of the change. It is not available if you rent out only part of the home, and it cannot be combined with claiming capital cost allowance.

The Trade-Offs to Weigh

The last row is the one many families miss. A family unit can designate only one principal residence for each year. If you designate the rental for the extra years, any growth in your new detached home over those same years is not sheltered. The right choice often depends on which property is likely to rise more in value, which no one can know for certain.

Capital Cost Allowance: Why Many Owners Skip It

Capital cost allowance (CCA) lets landlords deduct part of the building’s cost each year against rental income. On a residential rental it can reduce tax today, but it creates a recapture when you sell, and it shuts the door on the 45(2) election. Many small landlords choose not to claim it on a former home to keep the election in place. An accountant can run both scenarios with your actual numbers.

Get a Dated Valuation Before the First Tenant Moves In

Whether or not you elect, a record of the home’s fair market value on the date of the change is valuable. It supports the principal residence calculation and sets the cost base if you later sell. Options include a formal appraisal or a written opinion of value based on recent comparable sales, dated close to the move-out date. Keep it with your tax records, along with the tenant’s lease start date.

Other Things to Settle Before You Rent

• Mortgage: tell your lender. Some mortgages for owner-occupied homes have conditions about renting.
• Insurance: switch to a landlord policy.
• Condo rules: confirm leasing is allowed and register the lease if required.
• Tenant screening: see how Markham landlords should screen tenants under Ontario law.
• Holding period: if you bought the home less than 365 days ago, review the federal flipping rule. See selling within a year of buying.

A Simple Example

A family bought a Markham townhouse in 2016 and lived there until moving into a detached home in 2026, then rented the townhouse out. They make the 45(2) election, do not claim CCA, and sell the townhouse in 2029. Under the election, the townhouse can be their principal residence for the years they lived there plus up to four rental years, so much or all of the gain may be sheltered. But they cannot designate the new detached home for the same years. Their accountant compares which designation saves more tax. This is an illustration only.

Ultimately, the decision is yours. The goal is to make sure you have all the information before you sign the first lease.

Next Steps

• Real estate investing in Markham: plan your first rental property.
• Request a free home evaluation: a dated value for your records.
• Buy or sell first?: a plan for move-up families.

Work With Michael John Lau in Markham

Michael John Lau helps Markham move-up families plan whether to sell or keep their first home, with clear numbers on value, rent and costs. He works alongside your accountant, so the tax side is handled before the first tenant moves in. The goal is a decision that supports your long-term plan.

📞 Contact Michael John Lau, REALTOR®
🌐 www.callmikelau.com

Michael John Lau, REALTOR® · Markham, Ontario · (416) 700-0286
Disclaimer. Michael John Lau is a licensed REALTOR® serving buyers and sellers in Markham, Ontario and the Greater Toronto Area. Tax information summarizes subsections 45(2) and 45(3) of the Income Tax Act and related CRA guidance, as described by TaxTips.ca, as of October 13, 2026. The example is for illustration only. Michael John Lau is not a lawyer, accountant, tax advisor or mortgage professional. This article is general information, not legal, tax or financial advice. Speak with a qualified professional about your own situation.