Sale of mixed use commercial / residential building in Canada

I have purchased a commercial and residential-mix building consisting of 3 residential suites and 5 office or commercial suites which generates gross revenues of approximately $2,800.00 per month. When I took possession of the building, I moved into one of the suites day 1 of ownership, so use this building as my principal residence while renting the other spaces. If I sell this building, what portion will be considered as having a capital gains tax consequence and what portion of my renovations/maintenance/improvements costs can be considered as a write off? Secondly, can my labor as property manager be taken into consideration as an expense for tax write off purpose? I am looking forward to your reply Ozzie. Thanks in advance:)

The percentage of use to the repairs is what you would use. Repairs to fix a rental suite or business premise would be 100% deductible. Repairs to your suite would not be deductible at all. Repairs to the roof, heating system or other common areas would be deductible on a pro-rated basis based upon the personal square footage of rental to the total space.

Your own labor is NOT a deduction.

With regard to the capital gains tax;
Bulletin IT120R6 would suggest that you would pay tax on the percentage of space you have been deducting.

The bulletin would suggest - as an example - that if you paid $100,000 and deducted 90% of the expenses each year against the rental income you received, that if you sold the building for $200,000 and made $100,000 profit, 90% or $90,000 would be taxable.

Of course, since we only pay tax on 50% of capital gains, only $45,000 would be taxable in that circumstance.

And, if it was a duplex, you would pay tax on half, if a triplex, 2/3rd's and if a four-plex, 3/4s.

I prefer a slightly more aggressive stance since bulletin IT120R6 is only policy and not law and the law is quite clear that your home and up to 1/2 hectare (1.22 acres) is tax free.

It is unlikely that your building is on more than 1.22 acres so I would start off suggesting that the whole thing is tax free if you have no claimed CCA (capital cost allowance or depreciation) on the building. If you have claimed CCA, I would still take the position that the portion of the building you lived in and the land is / was tax free.

And there is a case that gives credence to the position I have taken - Read the Fedel Sacomanno case following in another Q & A which means I do not have to retype everything.


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