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I bought my house in 2013 and have been renting it to present time. I never lived in it. I am thinking of starting to live in the house in 2025 and 2026 and then sell it in 2027. What do I have to do to claim the house as my principal residence? Do I have to pay any capital gains tax?

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You will be able to claim principal residence exemption for the years you live in it, not for the prior years where you didn't. In the year where you stop renting it and start living it, you may also need to declare a 'deemed disposition', effectively calculating the gain during the time you had it rented, thus 'resetting' your new cost basis so that when you sell it in 2027, any gain after the 'change in use' will not be taxable.

You can't avoid the gains on the years prior to living in it.

Here's a starting point on reading more from the CRA:

https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-12700-capital-gains/principal-residence-other-real-estate.html

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  • Does declaring a deemed disposition require the capital gains taxes to be paid now, or only when the property is eventually sold?
    – Chris W. Rea
    Commented Dec 4, 2023 at 16:55
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    @ChrisW.Rea A 'deemed disposition' is an event that is treated in the year it is 'deemed' to have occurred. If you are changing a rental into your principal residence, that means you will have a taxable capital gain on that year's tax return. Note a deemed disposition is not always a 'taxable' event; ie: changing your principal residence into a rental property is a deemed disposition, but is not taxable as the gain on your principal residence is likely not taxable. This is done to then identify the opening cost basis for rental income purposes [amongst other things].
    – Grade 'Eh' Bacon
    Commented Dec 4, 2023 at 17:04
  • I also read that since I never claimed CCA on the property, I can make a subsection 45(3) election and postpone the deemed disposition till I sell it in 2027. Furthermore, I can designate the property as my principal residence for up to 4 years before I actually occupy it as my your principal residence.
    – user122866
    Commented Dec 8, 2023 at 16:30
  • @user122866 Agreed with you on all points [is it until 2027? check the # of years you can defer] - well researched, make sure you print all this analysis for yourself and save it in a folder with your other tax papers so if the CRA audits you, you remember all of this.
    – Grade 'Eh' Bacon
    Commented Dec 8, 2023 at 17:22
  • Thanks @Grade'Eh'Bacon. I have another question posted May 3, tag capital-expenditure. Can I claim as a current expense for a new dishwasher and roof?
    – user122866
    Commented Dec 9, 2023 at 15:52

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