Personal use to income producing:
- Principle residence permits a taxpayer who changes the use of his or her home to be
designate this home as his or her principle residence for up to 4 years, as long as he or
she has elected not to have changed the use.
- Completing section 45(2) election will defer the capital gain on the change in use of the
principle residence.
Example 7-4
Given:
Purchase
Relocate
Return Back
Proceeds
Cost
FMV
FMV
Proceeds
2008
2011
2017
2019
$140,000
$200,000
$320,000
$415,000
Calculation – using subsection 45(2)
P of D  $415,000
ACB  $140,000
Gain  $275,000
Exempt Portion  ($275,000)
Capital Gain  Nil
Exempt Portion:
- 2008-2011  Owner Occupied (4 years)
- 2012-2017 but only 4 years count based on principal residence (5 In years)
- 2017- 2019  Owner Occupied (3 years)
- Total designated = 11 years
- (1+ # of years designated)/ # of years owned) * gain
- ((1+11)/12) * $275,000 = $275,000
 Only 2016 is missing, but it is protected with 1+ year rule
Calculation – Not using subsection 45(2)
2011
- In 2011, he rents out his home to earn income, which means there is deemed
disposition on the change in use.
- He can claim principle residence exemption from 2008- 2010.
P of D $200,000
ACB  $140,000
Gain  $60,000
Exempt Portion  ($60,000)
Capital gain  Nil
Exempt Portion:
((1+3)/4) * 60,000 = $60,000 from Years 2008 to 2010
2017
- When he returns to Calgary and moves back into the house there is another change in
use and resulting in deemed position.
- In this case, the principle residence exemption can be claimed for the years 2011 and
2017. Since the house was his principle residence at some point during each of those
years.
P of D  $320,000
ACB  (200,000)
Gain  $120,000
Exempt portion  $51,429
Capital Gain  $68,571
Taxable Capital Gain (1/2)  $34, 286
Exempt Portion:
((1+2)/7) * $120,000 = $51,429 Year 2011 and 2017
2019
- Finally when the home is sold in 2019, there would be no capital gain .
- There would be change in the use of property from 2018 to 2019.
P of D – estimated  $415,000
ACB  $(320,000)
Gain  $95,000
Exempt Portion  (95,000)
Capital gain  Nil
Exempt Portion:
(1+2)/3) * $95,000 = $95,000; from years 2018 to 2019
Example - 7-10 Stock Options/Shares
Date
Transaction
Number of shares
Cost
June 1, 2015
Jan 15, 2016
July 1, 2017
April 15, 2018
Purchase
Stock Div – 10%
Purchase
Stock Div – 10%
=(500*$2) = $1000
=(50*$1) = $50
=1000*$5 = $5000
= 155 * $6 = $930
June 19, 2019
Total
Aug 1, 2019
Purchase
500
500*10% = 50
1000
(500 + 50 + 1000) =
1,550 * 10% = 155
1000
2705
(500)
End, Total
Example 7-13
Example 7-14
Sold
2205
=1000*$9 = $9000
$15,980
P of D @ $5 = 2500
ACB = 500 * ($15,980
/2705) = ($2,954)
Selling Cost = $150
Capital loss $604
= 2205* $5.91 $13,026