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September 2nd, 2014 
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Many homebuyers often consider buying a property with an existing second unit or the potential to make one. First time homebuyers especially, look for the added income a basement apartment could generate. There can be many financial advantages with having a secondary unit, but as well the buyer needs to know the legal implications.

 

Buyers should be referring to their lawyers or accountants for legal and financial advice. As well, there are a number of details they should be keeping in mind.

 

Building and fire code and municipal zoning bylaws will impact whether a second suite is legal or not. Each municipality has its own variations of these bylaws.

 

If a buyer intends to create a legal second unit, they need to determine if the property qualifies under the bylaws of that municipality. If not, the buyer will need to determine if he is willing to make the necessary changes to create a legal apartment. A building permit is always necessary, even when construction is not taking place.

 

Zoning requirements, safety systems and building issues will determine any construction plans. A General Inspection for Fire Code Compliance must be completed by the Electrical Safety Authority, once you have a second suite. The inspection will look at both the owner's unit and the rental portion for fire code compliance.

 

If you are looking at a property that already has a second suite, and you want to determine whether it is legal, you will want to know if it has met the municipality's necessary requirements.  They would have to inspect the unit and determine if it met the required standards. Both new and existing apartments require a General Inspection for Fire Code Compliance.

 

Before you commit to having an apartment in your home, you will want to know your liabilities and responsibilities.

 

The cost to retrofit your property will depend on its current condition. The rent collected must be declared as income, however you can deduct direct expenses that relate to operating the rental unit, like appliances being replaced and indirect expenses like shared costs with the rest of the house, for example utilities and mortgage interest. The direct expenses that relate to the second unit are 100 per cent deductable while the indirect expenses will depend on the portion of the house that they take up. (For example the apartment might be 1/3rd of the entire property.)

 

Buyers should discuss with their accountants the advantages and disadvantages of deducting CCA (capital cost allowance) from their income. There are consequences to be considered when dealing with selling said property if CCA has been claimed, pertaining to the secondary unit no longer being considered part of your personal residence. (The equity earned on your personal residence is exempt from being taxed, upon selling, however if claimed, the owner would forego tax benefits from the sale of the property on the second unit portion of the property)

Many of the secondary units found in Toronto properties are not legal or retrofitted. You should be made aware of whether or not it is, before proceeding with a purchase, so that you know which direction you want to take and to protect your interest.

 

 

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