Principal Issues: 1. Whether a homeowner would be subject to a deemed disposition upon the creation of a secondary suite under the BC SSIP because of a partial change in use of their property to an income-producing use. 2. Whether a homeowner can claim the principal residence exemption for their entire property (that is, both the primary residence that they occupy and the secondary suite) when they dispose of it for the years that they used the secondary suite for rental use under the program.. 3. What are the income tax consequences to a homeowner, at the end of the program’s five-year term, in the following situations:
(a) a homeowner continues to rent their secondary suite for an additional term of say five or ten years or longer (that is, the secondary suite continues to be used in a rental arrangement).
(b) a homeowner begins to use their secondary suite for personal use such as for a dwelling for a family member). We have assumed that in this situation there would either be no payment of rent or perhaps the payment of rent on a cost recovery basis only. In other words, the secondary suite is being used for personal use and the activity would generally not constitute income from a source for the homeowner.
Position: 1. Question of fact but likely yes. However, a subsection 45(2) election may be made to defer any income tax implications 2. See comments 3. General comments provided.
Reasons: 1. When there has been a change in the relation between the use regularly made of the property as a principal residence and the use regularly made of the property for gaining or producing income, there will be a deemed disposition. 2. A secondary suite that is a self-contained unit will generally be a second and separate housing unit from the housing unit that a homeowner continues to occupy as their primary residence.
