An Alberta property owner rents out their basement suite. How does the rental income affect their property tax obligations and principal residence exemption?
Correct Answer
D) Property tax stays on full assessed value, but a separate rental unit may require apportioning the principal residence exemption, leaving part of any gain taxable
In Alberta, property taxes are based on the full assessed value regardless of how the property is used internally. However, for income tax purposes, if a significant portion of the home is rented as a separate unit, the CRA may require the owner to apportion the principal residence exemption. The portion attributable to the rental use would not qualify for the exemption, and any capital gain on that portion would be taxable.
Why This Is the Correct Answer
Property taxes are based on full assessed value regardless of internal use. For income tax purposes, if the rental suite is a separate, identifiable unit, CRA may require apportioning the principal residence exemption. The portion attributable to the rental use would not qualify for the exemption, making that portion of any capital gain taxable upon sale. Rental income itself is reported as income.
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