In a partial change in use, a taxpayer is deemed to dispose only of a portion of the property. For example, if a property is used 60% for business and 40% for personal and now the property will be used 100% for business, then there will be a capital gain or loss on only 40% of the property at the fair market value. This is under the assumption that the property is personally held. If the corporation owned 100% of the property, then there may not be a capital gain on this partial change of use. However, the individual may have to pay rent at fair market value for their personal use portion.

In a complete change of use, the property is changed from income-producing to another purpose such as personally held. In this case, there would be a capital gain or loss incurred on the property based on the fair market value. The change in use rule does not apply when there is a change from capital property to inventory and vice versa as they are both classified for business use for the purpose of earning income. If a taxpayer completely changed use from personal use to income-producing, they can file an election under subsection 45(2) of the Income Tax Act to defer the capital gain or loss in that tax year and there will not be a deemed disposition. By using this election, you have to report the net rental or business income but you cannot claim capital cost allowance (CCA) on the property. Furthermore, you can still designate this property as your principal residence for up to four years, with some conditions. Under subsection 45(3) of the Income Tax Act, a taxpayer can also file an election under certain circumstances to defer a capital gain when a property is changed from income-producing to a principal residence. If any CCA has been claimed on the property after 1984, then it voids this election.