Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Would capital gains be applicable to XXXXXXXXXX lots that were severed from the principal residence property where the severance was previously not allowable?
Position: A question of fact, likely yes
Reasons: Legislation & Bulletin
XXXXXXXXXX
2011-041748
George A. Robertson, CMA
March 26, 2012
Dear XXXXXXXXXX :
Re: Capital Gains on Severed Lots
This is in response to your request of August 10, 2011 on our views of capital gains on recently severed lots.
The details as presented by you are:
- Prior to 1990, a XXXXXXXXXX lot was severed on which you built a XXXXXXXXXX home. The Township permitted at that time, the use of this XXXXXXXXXX lot for a one family home.
- As a result of a residential development, at the rear of your property, you were allowed to sever XXXXXXXXXX lots in XXXXXXXXXX from your property.
- When you are no longer are able to continue the enjoyment of our home and land, would you be subject to capital gains these XXXXXXXXXX severed lots.
Our comments:
Paragraph 16 of Income Tax Interpretation Bulletin IT-120R6 Principal Residence (IT 120R6) states, in part:
...a taxpayer may be required by a law or regulation of a municipality or province with respect to residential lots to acquire more than one-half hectare of the property. Such a law or regulation could, for example, (a) require a minimum lot size for a residential lot in a particular area, or (b) impose a severance or subdivision restriction with respect to residential lots in a particular area.
To the extent that a taxpayer, in order to acquire a property as a residence, is required because of such a law or regulation to acquire land that exceeds one-half hectare, the land that must be so acquired is generally considered to be necessary for the use and enjoyment of the housing unit as a residence throughout the period that the property is continuously owned by the taxpayer after the acquisition
date. . .
. . . where any portion of the land in excess of one-half hectare is not used for residential purposes but rather for income-producing purposes, such portion is usually not considered to be necessary for the use and enjoyment of the housing unit as a residence.
Paragraph 17 of IT 120R6 continues,
If the housing unit is situated on land in excess of one-half hectare and part or all of that excess land is severed from the property and sold, the land sold is generally considered not to be part of the principal residence unless the housing unit can no longer be used as a residence due to the land sale. If the housing unit can still be so used, such a sale indicates that the land sold was not necessary for the use and enjoyment of the housing unit as a residence.
Circumstances or events beyond the taxpayer's control may cause a portion of the land to cease to be necessary for the use and enjoyment of the housing unit as a residence (e.g., a minimum lot size requirement or severance or subdivision restriction in effect at the date of acquisition is subsequently relaxed). If the taxpayer then subdivides the excess land, it will be considered to have been necessary until the time of its subdivision. After subdivision, each newly created lot is a separate property and only the property on which the housing unit is located may continue to be designated as the taxpayer's principal residence.
Whether a particular property meets the requirements of the definition of "principal residence" in section 54 of the Income Tax Act is a question of fact. It appears that new zoning bylaw(s) have permitted the severing of XXXXXXXXXX lots from your original XXXXXXXXXX ] property in such a manner that any XXXXXXXXXX or all of the XXXXXXXXXX lots and principal residence could now be sold. In our view, the fact that the XXXXXXXXXX lots could be severed from the original property is proof that these lots were not necessary for the use and enjoyment of the housing unit as a principal residence. It appears that the house could now be sold without the additional portion of the remaining land. The severed lots would be considered to have been necessary until the time of the severing.
Based on the details provided, the XXXXXXXXXX severed lots could be subject to capital gains upon the disposition of same. Further information on Principal Residences is in IT 120R6, available at Canada Revenue Agency's web site, http://www.cra- arc.gc.ca/E/pub/tp/it120r6/it120r6-e.html .
Yours truly,
Sharmini Ratnasingham
Assistant Director
Financial Industries Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2012
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2012
Email this Content