Interest: a deduction decided the day you borrow
Interest follows the use of the borrowed money, not the property that secures it. A line of credit on your own home used for a rental down payment is fully deductible; a refinance of the rental spent on a family kitchen is not, even though the debt sits on the rental. The order of operations at purchase, which account the funds move through and what they buy, fixes deductibility for the life of the loan.
There is legitimate planning in that rule: directing repayments so personal, non-deductible debt dies first while deductible debt stands. What there is not is retroactive repair. If a past refinance blurred the trail, we reconstruct the tracing now, on paper, before the CRA asks for it.
Change of use: two elections to know before the moving truck
Converting your home into a rental, or a rental into your home, triggers a deemed disposition at fair market value by default: tax on paper gains with no sale proceeds to pay it. Two elections change the outcome:
- Subsection 45(2), filed when a home becomes a rental, defers the deemed disposition and can keep principal-residence treatment running for up to four more years while tenants pay the mortgage.
- Subsection 45(3), filed when a rental becomes your home, defers the accrued gain until an actual sale, but it is off the table if CCA was ever claimed on the property.
Both are cheap to file and expensive to miss, and the second is the standing argument for preserving CCA on any unit you might one day occupy yourself.
Co-ownership or partnership: a line that moves your CCA
Two people on title are usually co-owners, each reporting a share on their own T776 and each making an independent CCA decision. Run the property as a genuine joint business, with services, joint management and a business-like operation, and you may instead be a partnership, where CCA is computed once at the partnership level and everyone lives with the same claim.
| Question | Co-ownership | Partnership |
|---|---|---|
| Who decides CCA? | Each owner separately, on their own return | The partnership, once, before allocating profit |
| Can one claim and another preserve? | Yes | No |
| Extra filings | None; each files a T776 share | A T5013 information return may be required |
| Adding or exiting an owner | A part-interest sale of the property | A disposition of a partnership interest, with its own rules |
The label turns on facts, not preference, and switching stories after a few filed returns invites reassessment. We establish which one you are before the first return goes in.
Whose income is it?
Title does not settle who reports the rent; source of funds does. Put your spouse on title for a property you alone funded and the attribution rules send the income, and later the capital gains, back to you. Genuine 50/50 funding supports 50/50 reporting. Where shifting future rent to a lower-income spouse is the goal, a documented prescribed-rate loan with interest actually paid each year does it legitimately. We set the reporting split at purchase, with the paper to defend it a decade later.
Planning the exit
A sale stacks recapture and capital gain into one year, so timing is a real lever. Closing in January instead of December moves the whole bill a year out; staggering two dispositions across a year-end can keep both owners out of the top bracket. Take back a mortgage from your buyer and the capital gains reserve spreads the gain over up to five years, bringing at least one-fifth into income cumulatively each year.
A big gain year has an echo: the CRA's instalment system assumes next year looks the same and bills accordingly. We reset instalments after a one-time disposition so you are not lending the government money against income that will not repeat.
Death is the exit nobody schedules, and a deemed disposition of the whole portfolio can force an estate to sell buildings to pay tax. We plan holds, sales and transitions through Tax Planning and Advisory, bringing in Estate Planning where the portfolio is the estate. And if the plan involves a corporation, read the specified-investment-business reality first, which we cover honestly in our Incorporation work: rent inside a company rarely gets the small business deduction.
