Will renting my basement affect my principal-residence exemption?

Arsen Accounting Services · Question 158 · Sources checked October 29, 2026

Browse property, rentals and home sales →

It can, particularly where a substantial part of the home is converted for rental use. CRA has an administrative approach for certain small, ancillary income-producing uses, but every basement rental does not automatically qualify.

Review the three key conditions

CRA generally does not apply the partial change-of-use treatment when the rental or business use is relatively small, no structural changes are made to suit that use, and no capital cost allowance is claimed on the relevant property. If the conditions are not met, a deemed disposition of the affected portion may arise unless an applicable election changes the result.

Rental-income reporting remains necessary even where the administrative approach preserves the home's treatment. Allocating expenses and assessing the principal-residence issue are related but distinct tasks.

Official guidance: [1], [2].

Document the conversion

For example, a separate apartment created through substantial renovations raises different facts from occasionally renting an existing room. Record the work performed, the space involved, and when the use changed. A current floor plan alone may not show the earlier condition.

Prepare a property-use file

• Before-and-after plans, photographs, and renovation invoices.
• Rental start date and lease terms.
• Reasonable space and expense allocations.
• Prior CCA claims and property valuations where relevant.

Ask for the change-of-use position to be reviewed before claiming depreciation or selling the home. Keep any election and its filing proof with the permanent property records. Do not assume that reporting the rental expenses correctly automatically resolves the eventual capital-gain calculation.