It can be based on square footage - and the parts that you and your partner are in, plus the common area, will be not subject to cap gains.

In this particular project, we basically doubled the square footage by adding a second level which included new roof lines, new bedroom spaces and a fully renovated downstairs as well. 

Low purchase price for amount of square footage.

This way you're basically adding an additional bedroom and square footage to your home which would also significantly increase its value and would probably be a lot cheaper than building a whole mother in law suite or apartment above your garage?

But, also, I notice that the permit information available online does not show anything about the proposed home except for simple things like square footage and number of bedrooms. 

so low for all that square footage!

The home has a converted car port which is finished but not currently counted as square footage.

Is there a minimum square footage required for each room and/or a total minimum square footage for a 3 bedroom house? 

Many tenants paying OP rent rates are looking for their own upscale private home, backyard, more sq footage, etc. 

It requires larger bathrooms and removable areas under sinks and lavatories and backing but not pre-installation of grab-barsMost of that stuff except the extra square footage for maneuvering clearance costs very little so I think it is a good idea.