Municipalities trying to increase the rental inventory that now or soon will allow from 2-4 rental suites to be contained on a detached housing lot, through rental suites and laneway houses include Vancouver, North Vancouver, Coquitlam and Port Moody. But what if you sell your house after benefitting from this? The portion of a principal residence lot, such as detached laneway house, used to generate rental income could be subject to capital gains taxation when the property is eventually sold. The portion of a house being rented out, such as a basement suite, would not necessarily trigger a capital gains tax, detached laneway houses are not so clearly defined.
When the entire property is eventually sold any gain realized on the laneway house portion will not be eligible for the principal residence exemption, the owner is required to track all costs associated with building the laneway house as well as keep records related to the original cost of the property, capital improvements made, the relative value of the land versus the main residence on the date of the deemed disposition and on the date of sale.
You could potentially lose a hefty portion of the principal residence exemption. Homeowners should weigh the risk vs reward with laneway house rental income vs tax exemptions.