When your Saskatchewan home becomes a rental, three things change on your tax return. The Canada Revenue Agency treats you as having sold the house at fair market value the day the use changes, even though nothing was sold. You start reporting rent on Form T776. And one election, under subsection 45(2) of the Income Tax Act, decides whether the years ahead can still be sheltered by the principal residence exemption.
This article is written for the owner whose former home became a rental, not for someone who bought a property to rent out. Those two readers have very different tax problems, and most of what you will find online is written for the second one. If you got here because of a job transfer, a parent's house, or a sale that did not happen, start with the accidental landlord's guide to Saskatchewan and come back for the tax detail.
The day your home becomes a rental, the CRA treats it as a sale
The CRA's own wording is blunt: "Every time you change the use of a property, you are considered to have sold the property at its fair market value (FMV) and have immediately reacquired the property for the same amount." (CRA, Principal residence and other real estate, under "Changes in use")
Nobody buys the house. No money moves. But for tax purposes there is a disposition on that date, and you reacquire the property at the same value. That value becomes your new cost base going forward, so any growth in value after that date belongs to the rental side of the ledger rather than to your years living there.
The part owners miss most often is the timing. The disposition, the principal residence designation, and any resulting gain have to be reported in the year the change of use occurs, not years later when you eventually sell. (CRA, Principal residence and other real estate)
So the practical job in year one is to establish what the house was worth on the day the tenant took possession, and to write that number down while it is still easy to defend. Saskatchewan makes this worth taking seriously. The benchmark home price in Saskatoon hit a record $448,400 in June 2026 and Regina sat at $356,400 (Saskatchewan REALTORS® Association, June 2026, creastats.crea.ca/board/sra). Whatever evidence you use for fair market value, date it, keep it, and hand a copy to your accountant.
The subsection 45(2) election, and what it actually buys you
Subsection 45(2) is the reason a lot of these calls end better than the owner expected. The election lets a property keep its principal residence designation for up to four tax years during which the election is in force, even though you are not ordinarily inhabiting it. (CRA, Income Tax Folio S1-F3-C2, Principal Residence)
What the election does, in the CRA's plain words, is let you "make an election not to be considered as having started to use your principal residence as a rental or business property", which "means you do not have to report any capital gain when you change its use". So it does not just preserve a designation for later, it removes the year-one reporting that the previous section describes.
It is made by attaching a signed letter to your income tax and benefit return for the year in which the change of use occurs, describing the property and stating that you want subsection 45(2) to apply. There is no separate form to hunt down, and the year matters: this is the timing owners miss.
Three conditions apply while the election is in force:
| Condition | What it means in practice |
|---|---|
| You cannot claim capital cost allowance (CCA) on the property | Claiming CCA rescinds the election on the first day of the year in which the claim is made, which triggers a deemed disposition at fair market value on that date. The designated years before that claim still stand. See the CCA section below. |
| You cannot designate any other property as your principal residence | If you bought a house in Calgary or Ottawa after the move, both cannot be designated for the same years. |
| You must be a resident or deemed resident of Canada | An owner who leaves the country entirely may not qualify. See the non-resident section below. |
Whether the election is right for you depends on your numbers, how long you expect to be away, and what else you own. That is an accountant's call on your specific facts, not a decision to make from an article. If the underlying question is still whether to rent at all, the arithmetic is in should you rent or sell your house in Saskatchewan.
How the principal residence exemption fits in
The principal residence exemption is what normally keeps the gain on your own home out of your taxable income. It works year by year, and only one property per family unit can be designated for any given year.
Once the house becomes a rental, those years stop being principal residence years, because you are no longer ordinarily inhabiting it. That is the gap the 45(2) election fills: it lets you keep designating the property for up to four of those years even while a tenant lives there.
Two owners with identical houses can end up in very different places on this, purely on whether the election was filed on time and whether CCA was ever claimed. It is one of the few tax decisions in this whole process where the deadline genuinely matters.
Reporting the rent: Form T776
Rental income goes on Form T776, Statement of Real Estate Rentals, filed as part of your personal T1 return. (CRA, T776 Statement of Real Estate Rentals, and the CRA's T4036 Rental Income guide)
You report the gross rent you collected, then the deductible expenses, and the net figure is what flows into your taxable income. Reporting the net number your property manager deposited to your account is a common first-year mistake. The gross rent and the management fee are two separate lines, and the fee is only deductible if you show it.
If the house is co-owned, whether with a spouse or with siblings after an estate settles, each owner reports their own share of the income and expenses in proportion to ownership. That last case gets complicated fast when beneficiaries live in different provinces, and it is worth reading alongside what to do with an inherited house in Saskatchewan and the tax detail in real estate inheritance.
To put a number on the scale of it: at Saskatoon's median asking rent of $1,472 a month (Zumper, August 2026, zumper.com/rent-research/saskatoon-sk), a full year of tenancy is roughly $17,664 in gross rent that has to appear on the T776 whether or not the property made money after expenses. Regina's median asking rent is $1,389 (Zumper, August 2026).
What comes off, and the line most first-timers get wrong
The deductions themselves are laid out line by line in our Saskatchewan rental tax deductions checklist, so this section is only about the distinction that causes the most trouble.
Current expenses come off this year's rental income. Capital expenses do not. The test is whether the work restores the property to the condition it was in, or improves it beyond that condition. Repainting between tenants and replacing a failed faucet are current. A new roof, new windows, or a kitchen renovation are capital, and they get added to the property's cost base instead of being deducted now.
Two more that catch people every year. Only the interest portion of the mortgage payment is deductible, never the principal. And your own labour is not deductible, no matter how many weekends you spent in the house getting it ready. Materials yes, your time no. Property management fees are a deductible operating expense, as are insurance, property taxes, advertising, and repairs.
The CCA trap
Capital cost allowance is the tax depreciation you can claim on a rental building. In year one it looks like free money: it lowers your taxable rental income immediately, and a first-time landlord staring at a tax bill they did not plan for is exactly the person most likely to take it.
Do not take it, at least not before your accountant has ruled on the 45(2) question. Claiming CCA does three things at once:
- It disqualifies you from the subsection 45(2) election, which is a stated condition of the election (CRA, Folio S1-F3-C2).
- It blocks a late-filed election too, since one of the circumstances for accepting a late election is that no CCA has been claimed since the change in use.
- It creates recapture when you sell, meaning the CRA recovers the deductions you took. The bill arrives at the worst possible time, in the year you dispose of the property.
Moving out of province is not the same as leaving Canada
This is the single most misunderstood point in this whole subject, and getting it wrong costs real money in both directions.
Moving from Saskatchewan to Alberta, British Columbia, Ontario, or anywhere else in Canada does not make you a non-resident. A job transfer to another province, with the Saskatchewan house kept and rented out behind you, changes nothing about your Canadian tax residency. You file a normal Canadian return and report the rental income on Form T776 exactly as you would have living in Regina. The 25% withholding regime does not apply to you at all.
Leaving Canada is a different matter. If you genuinely become a non-resident, a 25% Part XIII tax applies to your Canadian rental income unless a treaty reduces it, and the withholding obligation binds your property manager as much as it binds you. Whether you become a non-resident turns on your particular circumstances, so if you are leaving the country rather than the province, get that answered before the first rent payment is due rather than at tax time.
The full mechanics, including Form NR6, the difference between withholding on gross and on net rent, who has to sign, and the filing deadlines that change once an NR6 is approved, are in renting out your Saskatchewan home after you move away.
What to hand your accountant
Bring this to the first appointment and the return gets much cheaper to prepare.
- The exact date the property became a rental, in writing.
- Your evidence of fair market value on that date, and how you arrived at it.
- A note on whether you may move back in, so the 45(2) question gets asked.
- Confirmation of whether CCA has ever been claimed on the property.
- The signed lease and a rent ledger showing gross rent collected by month.
- Every expense invoice for the year, sorted into repairs and improvements.
- The year-end mortgage interest summary from your lender.
- The municipal property tax bill.
- Owner statements from your property manager, showing gross rent and fees separately.
- The ownership split if the property is co-owned, and each owner's province of residence for the year.
Frequently Asked Questions
Do I have to report anything the year my home becomes a rental?
Yes, unless you file a subsection 45(2) election with that year's return, in which case you are deemed not to have changed the use and there is no gain to report at that point. Without the election, the disposition, the principal residence designation, and any resulting gain are reported in the year the change of use occurs. The CRA treats a change of use as a deemed disposition at fair market value with an immediate reacquisition at the same amount, so there is a reporting obligation that year even though nothing was sold and no money changed hands.
What is the subsection 45(2) election?
It is an election not to be treated as having started to use your principal residence as a rental, which means you do not report a capital gain when the use changes, and the property can keep its principal residence designation for up to four tax years during which the election is in force. You make it by attaching a signed letter to your income tax and benefit return for the year the change of use occurs, describing the property and stating the election.
How long does the subsection 45(2) election last?
Up to four tax years during which the election is in force, and beyond that the property is not designated as your principal residence for the later years. There is one significant exception. Under section 54.1 the four-year limit does not apply where you are living away because your employer, or your spouse's or common-law partner's employer, relocated you, the employer is not related to you, the home is at least 40 kilometres farther from the new workplace than your new residence is, and you resume living in the home while still employed by that same employer, or by the end of the tax year following the year that employment ends (two companies in the same corporate group do not count as the same employer) (CRA folio S1-F3-C2, paragraph 2.52). A genuine job transfer is the case that provision was written for.
Can I claim CCA if I want to file the 45(2) election?
No. Not claiming capital cost allowance on the property is a stated condition of the election while it is in force. It also matters for a late-filed election, because one of the circumstances in which the CRA may accept a late election is that no CCA has been claimed since the change in use.
Do I pay 25% withholding tax if I move from Saskatchewan to Alberta?
No. The 25% Part XIII withholding and the Section 216 election apply to non-residents of Canada. Moving to another province does not make you a non-resident. You file a normal Canadian return and report the rental income on Form T776 exactly as you would have living in Regina or Saskatoon.
What form do I use to report rental income in Canada?
Form T776, Statement of Real Estate Rentals, filed as part of your personal T1 return. You report gross rent, then deductible expenses, and the net amount flows into your taxable income.
Is the whole mortgage payment deductible against rental income?
No. Only the interest portion is deductible. The principal portion of the payment is not an expense, it is reducing your loan balance. Your lender's year-end statement will separate the two.
