When there is change in use of real estate (ex. from income-producing to personal-use), a deemed disposition occurs at fair market value (FMV). This can result in a capital gain (i.e. FMV less Adjusted Cost Base). However, in certain situations, an election under subsection 45(3) can be made to defer the capital gain by reporting the disposition of the property when the property is actually sold.
For more information regarding this election, read CRA Guide T4037 Capital Gains.
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