CRA reconciles its differing treatment of duplexes and triplexes for change-of-use and principal residence purposes

CRA effectively considers a duplex or triplex to be a single property for purposes of the s. 45 change-of-use rules and as comprising two or three housing units for principal residence exemption purposes – and also considers rental to family members at below-market rents as personal use for s. 45 purposes.

An individual owner of the whole triplex used Unit 1 (representing 50% of the area) for direct personal use and rented out the other two units – then some years later (at the beginning of “Year 11”), started renting out Unit 1, moved into Unit 2 for direct personal use and provided Unit 3 to family members at a low rent.

CRA considered that because, after this change, the use of the single property (the triplex) was still 50% personal and 50% 3rd-party rental, the change of use rules did not apply. However, on a subsequent sale of the triplex, the individual would be required to make separate designations for each unit for which he was claiming the principal residence exemption. This has the effect of entitling the individual to claim the principal residence exemption only for years in which particular units were used personally or by qualifying family members.

Neal Armstrong. Summaries of 7 October 2016 APFF Roundtable, Q. 2 under s. 45(1)(c) and s. 40(2)(b).