Sold a duplex – how is it taxed?

Question – This year we sold a duplex which was half rented and half used as our primary residence. I understand that only half of the substantial profit will be subject to capital gains tax. But where is this calculation made on our tax forms? – C.J.

Answer – You should get a copy of the Capital Gains Guide from Canada Customs and Revenue. It’s available on their web site. In it, you will find the following information relating to this sort of situation:

“Changing part of your principal residence to a rental or business operation – You are usually considered to have changed the use of part of your principal residence when you start to use that part for rental or business purposes. However, you are not considered to have changed its use if your rental or business use of the property is relatively small in relation to its use as your principal residence; you do not make any structural changes to the property to make it more suitable for rental or business purposes; and you do not deduct any CCA on the part you are using for rental or business purposes.

“If you meet all of the above cditions, the whole property may qualify as your principal residence, even though you are using part of it for rental or business purposes.

“However, if you do not meet all of the above conditions, when you actually sell the property you have to split the selling price between the part you used for your principal residence and the part you used for rental or business purposes. We will accept a split based on square metres or the number of rooms as long as the split is reasonable. Report any capital gain on the part you used for rental or business purposes. For more information, see the section called Real estate and depreciable property. You do not have to report any capital gain for the part you used for your principal residence.”

You will also find more information in the CCRA guide titled Rental Income, which is also available on their Web site.

These documents make no reference to any specific form that has to be completed in these circumstances. The general advice is to complete the appropriate section on Schedule 3 of the tax return, relating to real estate and depreciable property. You may wish to attach a note to your return explaining how you arrived at the calculations to avoid questions later. – G.P.