“We Forgot to File the 45(3) Election!” – A Canadian Taxpayer’s Close Call and What You Can Learn From It
Sarah and Ahmed never expected a tax surprise. After renting out their Mississauga home for a few years while working out west, they moved back in 2023 and settled into life as usual. That is—until tax season rolled around.
They were stunned to learn from the CRA that they might owe a large capital gains tax bill—even though they had never sold their home.
That’s when they came to me.
What Happened?
When a property’s use changes from rental back to principal residence, the Canada Revenue Agency (CRA) treats it as if it were sold at fair market value and re-purchased on the day you moved back in. That’s a deemed disposition, and it often means you owe capital gains tax.
Unless… you file a subsection 45(3) election, which defers the tax until the property is actually sold.
But Sarah and Ahmed had never filed the election. They’d never even heard of it.
How I Stepped In
After they reached out, I reviewed their case and knew we had a chance. The clock was ticking, but CRA does allow late elections under taxpayer relief provisions if you meet the conditions.
I prepared and submitted everything on their behalf:
A written letter stating they were electing under subsection 45(3)
Detailed property info and timing of the change in use
A clear explanation for why the election wasn’t filed on time
Confirmation that they had not claimed CCA (depreciation) on the property—crucial for eligibility
We filed it as part of their return, with a strong case for relief under subsection 220(3.2) of the Income Tax Act.
CRA Accepted the Election
A few weeks later, we received the good news: the CRA accepted the late-filed 45(3) election.
Sarah and Ahmed were spared thousands in unnecessary taxes—all because they reached out in time and got professional support.
What You Need to Know About the 45(3) Election
It applies when a rental property becomes your principal residence again.
Without this election, you may be hit with unexpected capital gains tax.You must not have claimed CCA on the property during the rental period if you want to qualify for the election.
The election must be filed in writing—it’s not something you can just check off on your tax return.
If you missed the deadline, CRA may still accept it, but only if you provide a solid explanation and act quickly.
Don’t Wait Until It’s Too Late
Tax rules around real estate can be complex. What happened to Sarah and Ahmed isn’t uncommon—but it’s preventable. If you’ve changed the use of your property, don’t guess at the consequences.
Reach out and I’ll review your situation. If a missed election has you worried, we may still have time to make it right.
Book a consultation with me, Ali Asghar CPA—serving homeowners and business owners across the GTA and beyond.
