Do I need to fill out T2091 when I converted rental house to personal residence for which I will claim the principal residence in the future?

I bought a house in 2003 that was my principal residence until 2014.  In 2014, I converted it to a rental property and got an appraisal done.  I claimed the PR exemption in 2014 and started reporting the rental income.  In that year, the PR was not required to be reported on the tax return. 

In 2019, I converted the house back to my principal residence.  I had an appraisal done. There was an increase from 2014 on the land portion of the property.  I am including the capital gain on my tax return for 2019.  No 45(2) or (3) election was made.  I am okay with that. 

My question is, do I need to fill out the T2019 even though I did not sell my PR in 2019?  When I look at the form, it doesn't appear so.  When I look on Schedule 3 when I report my CG, it doesn't appear so but then at the bottom of the form it says you may need to if you changed the use from a business property to a PR.  It is a little confusing.  What do you think?  Thank you in advance.

Answer

Great question. I'm not 100% sure, but here are my thoughts. 

No, in my opinion the T2091 form would not be required. This was NOT your principal residence for any of the years that you rented the property. You are reporting the deemed disposition as you should, you have correctly attained an appraisal, you will not qualify for the Principal Residence Exemption (PRE) for any of the years and will pay the required tax. 

Let's compare this to a scenario if you ACTUALLY sold the property and were not deemed to sell it by moving back in. In that case you for sure would not be able to use the PRE T2091 form. On the day you started renting it in 2014 it's as if you bought a new property on that date and started renting it immediately. Because you did not live in the property after you started renting it, you would not qualify to use the PRE for any of the years. 

So if you use that same logic for your situation, if you used the the T2091, you would incorrectly get one bonus year of exemption, which would eliminate some of the gains and you would pay less tax. If that was the case, you would have an advantage over anyone that bought a property, never lived in it, always rented it and sold it. Doesn't seem fair to me. I'm pretty sure the income tax act would not have a loop hole in it like this that would discriminate against those that never lived in the property at all. 

Having said that, Schedule 3 clearly does make reference to this. 

Anyone else have any thoughts on this? 

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