Capital Gains Tax When a Parent Moves Into Long-Term Care

I get questions like this all the time, and I see discussions about this on Reddit constantly.

“My mother just moved into a nursing home. It was her principal residence. Now we’re thinking of renting it out. Will there be capital gains tax?”

Short answer: yes, eventually. But you may be able to claim an exemption.

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But there’s a special election that can delay it and keep your principal residence exemption going for up to 4 more years.

Renting After Moving Into Long-Term Care

If your parent owns a home and goes into long-term care, most children decide to rent the house temporarily or permanently until selling. CRA could considers the home no longer a principal residence once it’s rented out.

That usually means you’d lose the exemption and start accruing capital gains on any appreciation after the move.

But, there’s a potential solution in the Income Tax Act, and it's important to work with a CPA in Ottawa who knows what to do in this situation.

Subsection 45(2) Election

Under subsection 45(2), you can elect to treat the property as a principal residence for up to 4 bonus years, even if it’s no longer lived in and is being rented. You could also defer the deemed disposition until the house is actually sold.

To qualify:

• The property must have been the principal residence before renting
• No CCA (capital cost allowance) can be claimed during the rental period
• You need to file a proper election with the CRA during the year it first gets rented

Why It Matters

If you skip this election, CRA will treat the property as having changed its use (from personal to rental), and capital gains will start adding up immediately.

You would also need to file Form T2091 in the year it first gets rented, or you could face serious penalties.

But with a proper 45(2) election, you can extend the principal residence exemption, shielding more of the home’s value from tax even if it’s rented out.

Final Thoughts

This is a common scenario I help with in Ottawa and across Ontario. You don’t want to get this wrong. The 45(2) election isn’t something you want to miss because CRA doesn’t always accept late filings.

If you’re acting under Power of Attorney or helping a loved one in long-term care, talk to Lucas Ghosn, CPA in Ottawa who knows how to handle this type of election properly.

Reference Articles

• CI Financial – Long-Term Care and the Principal Residence Exemption
• Reddit discussion on capital gains and nursing home transitions
• Advisor.ca – Principal Residence Rules

Need help filing the election? I do this kind of work all the time. Reach out.

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