Moving into Rental property in canda

My question is: Canadian-specific

QUESTION: In canada, when you sold your living house you don't need to pay any taxes (e.g. Income tax or Capital Gain).
Currently I own 2 properties, one for my own and one for rent. I wanna sell both of them. Cen I do the following without paying any taxes still?
1) sell my own property first (tax free)
2) I ask my tenant to move out from my second property.
3) I moved into my second property and live there for one year.
4) after one year I sell my second property; does my second property still tax FREE?

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david ingram replies:

Nice try and good thought but IT WILL NOT WORK.

The second you move into the rental house you are considered to have a deemed disposition and owe capital gains tax although you can defer it until actual sale.

Read this older question.

Subject: Buying a house to move into in 4 years -David Ingram expert income tax help and preparation of US Canada Mexico non-resident and cross border returns with rental dividend wages self-employed and royalty foreign tax credits family estate trust trusts income tax convention treaty

From: David Ingram <[email protected]>

Date: Sat, 24 Feb 2007 20:21:54 -0800

To: centapede-ca <[email protected]>

My question is: Canadian-specific

QUESTION: We in the process of purchasing a house in Penticton and will rent it out, retire (in about 4 years)and  move into it ourselves.  If we live there for 2 or more years are we liable for capital gains for the period we collected rental income?  What type of home insurance is best for a rental property?  What are your thoughts re the real estate market in the Okanagan in the next five years - steady growth or a slump after "2010"?  Many thanks, Jacalin

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david ingram replies:

You are liable for capital gains income tax for the period you rented it out.  In fact "When you move into the house", you will trigger a capital gains tax because of a change in use from a business use to a personal use.
The good news is that you can make an election under Section 45(3) of the income tax act to defer paying the tax until you actually sell the property. To make the calculation, fill in schedule 3 and put the taxable profit on line 127 of your T1.  then deduct the same amount on line 256 under Section 45(3).

I think the Okanagan AND the lower mainland markets are already overheated and think the prognosis is for little or no growth for the next five years but I have been wrong before.

That does not mean you should not buy because if I am wrong, it will cost so much more to buy six or seven years from now that you will be cursing me all the way to the mortgage broker.  If you buy and it goes down a bit, it does not matter because you are buying it to live in and that gives you the property in the future at today's price which is historically lower. �