If, during the year, you begin to use a former residence as a rental property, you are deemed to dispose of the property at fair market value at the time of the change in use. Similar rules apply when you begin to use a former rental property as a residence, for partial changes in use, and for changes in use of other types of property.

This could lead to a significant income tax liability, even though you haven't actually sold anything.

Special elections are available to avoid the deemed disposition in certain circumstances. If you have experienced a change in use, you should consult a Chartered Accountant to see if these elections are available and are beneficial to you.

Information for Tax Tips is provided as a public service by the Chartered Accountants of British Columbia.