I am moving out of my home to rent it — what are the tax steps I should take?

When you move out of your home and begin renting it to tenants, you are changing the use of the property from personal to income-producing under the federal Income Tax Act. This triggers a deemed disposition at the property's fair market value on the date of the change.

However, you can file an election under section 45(2) of the Income Tax Act to defer this deemed disposition and continue to treat the property as your principal residence for up to four additional years after you move out. This election is valuable if you might move back or if the gain at the time of the change of use is already substantial. To preserve the election, you must not claim CCA on the rental property during the period of the election, and you must not designate any other property as your principal residence for those years.

To protect yourself, you should have the property appraised around the time you move out. This establishes the fair market value for tax purposes, which will determine either the amount of the deemed disposition gain (if you do not elect) or the starting point for any future capital gain beyond the elected period. A lawyer or accountant can help you decide whether the 45(2) election is in your interest and file it correctly.