Principales Questions: 1) Whether a change in use occurs when a taxpayer moves from one unit of a duplex to another unit, which he previously rented, and starts to rent the unit he used to inhabit?
2) Whether a change in use occurs as a result of important renovations made to one unit used for personal purposes, without any corresponding renovations being made to the other unit?
3) In the situation described in 2) whether certain expenses incurred in respect of the whole duplex should, after the renovation, be allocated on the basis of the relative FMV or relative cost of each unit, rather than based on the square meters of each unit?
4) In the situation described in 2), if the taxpayer were to dispose of the duplex, how should the proceeds of disposition be allocated considering the costs incurred for the renovation of one unit and the increase in value attributable to such renovation?
Position Adoptée: 1) Generally no, if the size of each unit is the same and the proportion of each use (personal and rental) of the duplex remains unchanged.
2) Generally no, unless the renovations are such that the size of the renovated unit is increased.
3) The allocation has to be reasonable considering all the relevant circumstances.
Raisons: 1) Wording of paragraphs 45(1)(a) and 45(1)(c), considering that the duplex is one single property.
2) Wording of paragraph 45(1)(c).
3) In accordance with paragraph 18(1)(a), an expense is not deductible except to the extent is was incurred by the taxpayer for the purposes of earning income. The allocation has to be reasonable in the circumstances.
4) The question is based on assumptions which the CRA is unable to verify.