For tax purposes, property can be treated in several ways. Property can be capital property or inventory. Property can also be personal property or business property. The same property can change from being capital property to inventory, or from personal property to business property, and back, depending on the circumstances.
When a person starts using property that was once personal property for purposes of gaining or producing income, then there is a change in use. Usually, where there is a change in use, the tax rules deem (pretend) that the property was sold at fair market value and re-purchased at the same value. This can be a taxable event and may put a taxpayer in a cash crunch – the property is not sold but taxes are payable.
To mitigate this, subsection 45(2) allows a taxpayer to file an election. When filed validly, the property is deemed to not have changed its use. This election can be rescinded. If a taxpayer fails to file the election, the CRA will in some circumstances accepts late elections.
