The owner of a duplex consisting of two identical units occupies the first unit and rents out the second. Subsequently, he incurs significant capital expenditures in renovating the second unit, so that its relative value increases. How should property expenses be apportioned? CRA responded:
Where an expense is incurred in respect of all of a property of which only a part is used for the purpose of gaining or producing income, the expense will be apportioned between the two parts of the property so that only the part of the expense that can reasonably be considered to have been incurred in order to gain or produce income may be deducted. Where a taxpayer rents out part of the property in which the taxpayer lives then, as set out in Guide T4036, Rental Income, the taxpayer may use the leased area or the number of rooms leased in the building to apportion the taxpayer's expenses, provided the allocation is reasonable.