[MoneyGal]

Agreed. Whether or not a home is a principal residence makes no difference to whether rental income is taxable or not. If it is income, it should be declared and it is taxable. Period.

This is accurate. However, the PR exemption comes into play when the property is sold, and the tax exemption is claimed. So even though the deemed disposition will have taken place in the past, it isn't claimed until one or the other of the properties is sold. And, once the PR exemption is claimed for one of the properties, it cannot be claimed for any other property for the same time period.

So, first: there isn't any current benefit to "maintaining two principal residences." The PR tax exemption is claimed at the point of sale.

And secondly: of course CRA will catch this, if he tries to actually claim a PR exemption for two properties at the same time. What he may be saying he's going to do is conceal the income from the sale of one of the properties, which is a slightly different matter; however, it sounds like he's already planning to conceal income from CRA.

My suspicion - especially given that there is little taxable income generated from the property (from what you've told us) is that what he's attempting to shield from CRA is any long-term capital gains on the property. He's already said as much by referring to having "two principal residences." It's as though he intends to conceal the entire existence of this property from CRA.

I have heard, more than once, but have no way to verify this, that CRA's main source of audit tips is disgruntled family members and friends. I don't think I'd enjoy living in fear of a lifestyle audit or even a "regular" audit (although I've been through one of those and emerged completely unscathed). If I was planning on doing something like this, you can bet I wouldn't be telling my acquaintances about it.

 

[MoneyGal]

oooh! That quote didn't work. I was attempting to quote the post from CC at 1:37 today about the deemed sale.

 

[MoneyGal]

It won't just "shoot holes" in his theory. It is literally impossible to do this. Here's the CRA form to designate a property as a principal residence.

Note that it asks the taxpayer to specifically confirm and sign off on the PR exemption claim. This is in addition to signing your tax return in general. CRA pays *very close attention* to this issue, as it is a source of large personal exemptions when it is used for its intended purpose.

Capital gains are already tax-preferred income. And there are lots of *legal* ways he can minimize the current income from his condo. I should stop responding to this thread, because these kinds of issues make my head explode.