If you buy a home and then change its use, should you always file the 45(3) election to defer any gain? Maybe not, according to James Painter, “Principal-Residence Tax-Deferral Election May Be Inadvisable” (Feb 2016) 6:1 Canadian Tax Focus. Mr Painter writes:
The key point is that subsection 45(3) does not simply defer taxing the gain accrued up to the change in use until the future disposition of the principal residence; instead, it erases the deemed disposition entirely and applies a formula to determine, on the ultimate disposition of the property, the proportion of the total capital gain that can be sheltered by the principal-residence exemption.
