Nepean, Ottawa
Tax work for the older Nepean neighbourhoods, from basement suites to pension income
This page is about the established Nepean core rather than the subdivisions south of it: City View, Trend-Arlington, Craig Henry, Centrepointe, Manordale and the streets running off Merivale and Baseline. The houses there were mostly built between the nineteen sixties and the nineteen eighties, and a large share of them are owned by the people who bought them decades ago. Two consequences follow, and they arrive together. The mortgage is gone and there is now a tenant on the lower level or a suite added for an adult child. And the income on the return has shifted from a single employer's slip to a spread of pension, registered withdrawals and investment income.
Why Nepean is its own case
Renting part of the house you live in is where most of the risk sits, because the tax-free treatment of a principal residence is not automatic once the property is also earning income. The administrative position that keeps it intact has three parts: the rental use has to be ancillary to your use of the home, you must not make a structural change to accommodate it, and you must not claim capital cost allowance on the property. Claiming depreciation is the one that does damage, because it converts the rented portion into income-producing property and starts a partial change of use, with a deemed disposition of that share at fair market value. There is also an election available when a property changes from personal use to earning income that lets you continue to treat it as your principal residence for a limited number of additional years, but it is unavailable if depreciation is being claimed. None of that is a reason to avoid renting the basement. It is a reason to set it up deliberately.
An older house makes the expense question harder than it is on a new one. Money spent restoring something to the condition it was in is a current expense you deduct against the rent this year. Money spent improving it beyond its previous condition, or replacing an entire asset rather than repairing part of it, is capital and comes off over time. Windows, a furnace, a roof and a kitchen on a fifty-year-old house are exactly the borderline cases, and doing all of them at once tends to make the whole package look like a renovation regardless of how each item would have been characterized alone.
On the personal side the useful lever is pension income splitting, where up to half of eligible pension income can be reported on a spouse's return by joint election. What counts as eligible depends on the source and on your age, since a lifetime annuity from a registered pension plan qualifies at any age while withdrawals from a registered income fund generally do not until sixty-five. Getting it right can pull one spouse under the threshold where the old age security recovery tax begins, preserve the age amount, and hand the pension income credit to the spouse who otherwise has none.
The work, as it applies here
Tax Expertise
The rental schedule for a suite in your own home done properly: expenses split on a defensible basis, repairs distinguished from improvements, no depreciation claimed on the building, and the pension split election optimized across two returns rather than assumed.
Detailed Bookkeeping
A simple set of records for a one-unit rental that will still make sense in a decade: rent received, expenses by category, and a running capital ledger of the improvements that will reduce the gain if the property is ever sold.
Strategic Planning
Retirement drawdown sequencing for a paid-off house and several income sources, including when to convert a registered plan, whether to use a younger spouse's age for the minimum, and how a sale or a move to a residence would land.
Questions from Nepean
- We rent the basement to a tenant. Does that put our house into the tax net when we sell it?
- Not if the arrangement stays within the limits. Where the rented part is ancillary to your own use of the home, no structural change was made to create it, and no depreciation is claimed on the building, the property is generally still treated as your principal residence in full. Cross any of those and only part of the gain is sheltered, with the fraction usually worked out on floor area or another reasonable measure. The reason depreciation is the dangerous one is that it is voluntary and reversible only going forward: the modest annual deduction is very rarely worth converting a share of a house you have owned for thirty years into taxable property.
- We put new windows and a new furnace into the rented floor. Do we deduct that or write it off slowly?
- The test is whether you restored the asset or improved it. Repairing a section of a roof, patching drywall or fixing a furnace is a current expense against this year's rent. Replacing an entire component with something better than what was there is capital, added to the cost of the building and recovered over time. A furnace and a full set of windows on a house of this age usually land on the capital side, because they replace the asset rather than repair it and their benefit is enduring. Two practical notes. Doing several items at once, especially just before renting the unit out, tends to be viewed as one renovation. And capitalized amounts are not lost, they increase the cost base and reduce any taxable gain on a sale.
- I am sixty-six and my wife is sixty-one. Can we split my pension income?
- Some of it, and which part depends on where it comes from. Payments from a lifetime annuity under a registered pension plan are eligible pension income at any age, so a public service or corporate pension can generally be split now. Withdrawals from a registered retirement income fund and annuity payments out of a registered retirement plan generally only become eligible at sixty-five. Up to half of the eligible amount can be reported by the other spouse, and it is done by a joint election filed with both returns, not by moving any money. Because it shifts taxable income rather than cash, it can also move the pension income credit and the age amount, and it can pull a higher-income spouse below the point where old age security starts being recovered. The right percentage is calculated, not assumed.
- Is splitting our CPP the same thing?
- No, and confusing the two is common. Pension income splitting is an annual election on your tax returns that moves income on paper. Sharing Canada Pension Plan retirement benefits is an application to Service Canada that changes the actual payments, so each of you receives a differently sized cheque. Both spouses generally have to be at least sixty and receiving or eligible to receive their own retirement pension, and only the portion of the benefits earned during the period you lived together can be shared. It is worth doing where one spouse has a much larger contributory history than the other, it takes effect prospectively rather than for past years, and it ends on separation or death rather than continuing automatically.
- We are moving into a retirement residence and keeping the house empty for a year. Is there anything to file?
- Yes, and it is easy to miss because it is a municipal filing rather than a tax return. Ottawa requires an annual occupancy declaration from residential property owners, and a property whose owner does not declare can be treated as vacant and taxed accordingly, even where an exemption would have applied. Do the declaration on time and keep the confirmation. Separately, if the house is left empty rather than rented, there is no change of use for income tax purposes and nothing happens on that side, while renting it out is a change of use with its own consequences. On the residence itself, the attendant care portion of the fees can often be claimed as a medical expense, and the facility will provide a breakdown if you ask for one.
- Our house is worth many times what we paid for it. Do we owe tax when we downsize?
- Generally not, if it has been your principal residence for the whole time you owned it, but the sale still has to be reported. Since the reporting rules changed, a sale has to be shown on the return with the designation made, even when the entire gain is exempt, and failing to report it can cost a penalty for something that would otherwise have been tax-free. Two further points matter for a long-held Nepean house. Only one property per family unit can be designated for any given year, so a cottage or a second property owned at the same time forces a choice about which years go where. And the exemption formula includes an extra year, which usually covers the overlap when you buy the next place before the old one closes.
Reading that applies
Also covered by this page
These neighbourhoods raise the same questions as Nepean and are handled here.
- City View A small postwar Nepean neighbourhood off Merivale Road near Baseline.
- Craig Henry A 1970s subdivision between Greenbank Road and the Merivale industrial strip.
- Centrepointe Built around Ben Franklin Place, the former Nepean city hall, and the Centrepointe Theatre.
- Crestview A 1950s and 1960s subdivision west of Woodroffe Avenue near Algonquin College.
- Manordale Paired with Woodvale in the local community association, off Merivale Road.
- Woodvale A small Nepean neighbourhood immediately next to Manordale.
- Merivale Gardens An older residential enclave hemmed in by the Merivale Road commercial corridor.
- Arlington Woods The Nepean neighbourhood hit by the second of the September 2018 tornadoes.
- Trend Village Joined with Arlington Woods in a single community association off Greenbank Road.
- Qualicum Treated as one community with Graham Park by the residents' association that covers both.
- Graham Park A compact subdivision west of Baseline Road's older Nepean stretch, next door to Qualicum.
- Fisher Heights A 1950s subdivision on the slope beside Fisher Avenue.
- Parkwood Hills One of the densest apartment clusters in the old city of Nepean, built around Meadowlands Drive.
- Tanglewood A Nepean neighbourhood grouped with Hillsdale in one community association.
- Copeland Park A 1950s subdivision sitting behind the Merivale Road shopping strip.
- Carlington Wartime housing built on the slope below the Royal Ottawa Hospital on Carling Avenue.
- Knoxdale Gives half its name to the Knoxdale-Merivale ward and takes it from Knoxdale Road.
- Bayshore Apartment towers and townhouses wrapped around the Bayshore Shopping Centre at Carling and Richmond.
- Whitehaven A postwar subdivision west of Pinecrest Road, north of Carling Avenue.
- Woodpark The blocks between Richmond Road and Carling Avenue at Lincoln Fields.
- Queensway Terrace North Built in the 1950s on the north side of the highway it is named after.
- Queensway Terrace South The counterpart on the far side of the Queensway, cut off from its twin by the highway itself.
- Pineglen A small greenbelt-edge enclave off Merivale Road south of Hunt Club.
- Grenfell Glen Larger lots near Prince of Wales Drive, inside the greenbelt but outside the suburban grid.
- Country Place A 1970s planned enclave of curving streets west of Prince of Wales Drive.