Does renting out part of my home affect my principal residence exemption?

Renting out part of your home — a basement suite, a spare bedroom, or even a short-term rental through a platform like Airbnb — can affect your principal residence exemption when you eventually sell, depending on how significant the rental use is and whether you have claimed capital cost allowance (CCA).

The CRA takes the position that if you are renting a clearly distinct portion of your home (a self-contained basement apartment, for example), that portion may not qualify for the exemption. On sale, you may need to allocate a portion of the gain to the rented area and pay tax on it. However, if the rental use is minor and incidental to the overall use of the home as your principal residence, the entire property may still qualify.

A more significant risk is claiming CCA on the rented portion. The Income Tax Act provides that if you claim CCA on a portion of your home, you are treated as if you changed the use of that part from personal to income-producing, which can trigger a partial disposition at fair market value. Most tax advisors recommend against claiming CCA on a portion of a personal home for exactly this reason.