25 May 1995 External T.I. 9510995 - CAPITAL GAINS ELECTION AND PRINCIPAL RESIDENCE

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Whether or not entire property of 15.414 acres upon which client's residence is located would be eligible for the principal residence exemption for the purposes of the capital gains calculation.

Position TAKEN:

Question of Fact. General comments provided and enquiry referred to tax services office for action.

Reasons FOR POSITION TAKEN:

Unable to give definitive reply with limited information received.

				951099
XXXXXXXXXX			D. Zion

May 25, 1995

Dear XXXXXXXXXX:

Re: Principal Residence and Capital Gains Election

We are writing in response to your letter of April 1, 1995, in which you request our advice regarding the eligibility of property adjacent to your residence for the principal residence exemption for the purposes of the capital gains election.

As we understand the situation, your residence is situated on a parcel of land which is 15.414 acres in size. The property was purchased in 1987. You have forwarded to us a copy of an excerpt from the official plan of the town of XXXXXXXXXX and a survey of your property. You have furthermore advised us that your property is located in an area where no parcel of land less than 24.7 acres can be severed or subdivided. Accordingly, you are of the view that your entire property is therefore deemed necessary and was used solely for personal enjoyment. Unfortunately, we have insufficient information regarding your situation to enable us to give you a definitive answer.

The determination of how much land can be considered part of a principal residence in any particular case involves a finding of fact which can only be determined after a review of all the relevant facts and documentation. As this is normally the responsibility of the tax services office serving the area in which the client resides, we have forwarded your request to XXXXXXXXXX.

Upon their review of the documentation forwarded with your enquiry they will contact you for more detailed information regarding subdivision restrictions or minimum lot sizes at the time you acquired the property. They will then be in a position to provide you with a more definite response. We do have however, some general comments which should be of some assistance. Where a housing unit is situated on a large area of land, the land in excess of 1/2 hectare will only qualify as being part of a principal residence to the extent that the individual establishes that it was clearly necessary in order for the housing unit to properly fulfil its function as a residence and not simply be desirable. Land in excess of 1/2 hectare could be necessary where the size or character of a housing unit together with its location on the lot makes excess land essential to its use or enjoyment as a residence. In addition, land in excess of 1/2 hectare could be necessary where the location of a housing unit requires excess land in order to provide the taxpayer with access to and from public roads. In all cases, however, it is a question of fact as to how much, if any, of the excess land is necessary for the use and enjoyment of the housing unit as a residence.Paragraph 22 of the enclosed Interpretation Bulletin IT-120R4 "Principal Residence", states that "A legally imposed minimum lot size, for residential use, exceeding 1/2 hectare that was in effect on the date the property was acquired by the taxpayer, is generally considered to be the minimum amount of land 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 that acquisition date".

It is unclear whether the comments in this excerpt from paragraph 22 are applicable to your situation where the zoning at the time of acquisition has not been provided. The information provided is insufficient to enable us to determine whether the zoning by-law in question sets out minimum lot size restrictions, severance restrictions or both in your circumstances. Please note that it is the Department's view that the position regarding severance restrictions is not considered to be relevant if, at the time of acquisition, an application could have been made to the municipal authority to subdivide the land into smaller parcels. The excerpt provided to us with your letter does not clarify whether or not an application was possible nor whether or not the zoning by-law brought to our attention is only applicable for certain types of subdivisions. If any of these comments are applicable, it would seem to follow that only a part of the 15.414 acres would qualify for the principal residence exemption assuming that part otherwise so qualifies.

Where a portion of the land does not qualify for the principal residence exemption, it will be subject to the capital gains provisions effective at the time of disposition. Paragraph 25 of IT-120R4 provides the Department's position with respect to the disposition of a property where only a portion of it is found to qualify as a principal residence. This discussion also includes comments on the valuation of the excess property which could be pertinent to your situation.

We regret that we could not have been of more assistance.

Yours truly,

P.D. Fuoco
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch