15 August 1995 External T.I. 9513285 - PRINCIPAL RESIDENCE EXEMPTION

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 the principal residence exemption is available for taxation years in the pre-1982 period to a taxpayer who had previously designated another jointly-owned property as a principal residence for the same period.

Position TAKEN:

No.

Reasons FOR POSITION TAKEN:

The ownership and disposition of the first property in the pre-1982 period is a question of fact. The same taxpayer cannot now designate another property in respect of the same taxation years.

				951328
XXXXXXXXXX			J.A. Szeszycki

Attention: XXXXXXXXXX

August 15, 1995

Dear Sirs:

Re: Principal Residence Exemption

This is in reply to your letter of May 12, 1995 in which you requested our comments on your client's entitlement to designate a cottage property as a principal residence, for income tax purposes, in the circumstances described below. We regret the delay in providing you with a response.

The circumstances, as we understand them, can be summarized as follows:

1. Your client and his spouse have been married since before 1970 and that marriage has continued to the present.

2. Also prior to 1970, the couple acquired a home in Ottawa and registered the property as being jointly owned.

3. In 1970, your client erected a cottage on property previously acquired and registered in his name.

4. The Ottawa home was sold in 1980 and the couple opted for rented accommodations since that time to the present.

You have indicated that the state of the couple's finances has been such that each had the capacity to acquire either one of the properties. It is your view, therefore, that regardless of the registered ownership of the properties the disposition of the home in 1981 should be viewed in such a way as to allow your client to designate the cottage property as a principal residence for its entire period of ownership, including the period prior to 1982.

Our Comments

In providing our comments we will focus on the issues of ownership and designation and assume that each of the properties otherwise qualifies as a principal residence, as that term is defined in section 54 of the Income Tax Act.

In order to determine whether the cottage property could be designated as a principal residence for any particular taxation year it must first be determined whether any other property has been designated by the taxpayer for that year and, if the particular taxation year is subsequent to 1981, whether any other property has been designated by a person who was throughout that year his or her spouse or minor child.

The taxpayer, in this case, jointly with his spouse, owned the Ottawa home since prior to 1972, when the taxation of capital gains was introduced, up to November, 1980 when the home was sold. The joint ownership is supported by the fact that each of the spouses had the resources to contribute to the acquisition of the property. Consequently, each of the spouses had an ownership interest in the property at the time of its disposition.

As indicated earlier, for taxation years prior to 1982 each spouse could legally designate a property as his or her principal residence in respect of the same year. In this case, since each spouse had an ownership interest in the Ottawa property at the time of its disposition, each spouse could designate his or her share of the property to be a principal residence for each of the years it was so owned prior to its disposition in 1980.

Since no capital gain was reported upon the disposition of the Ottawa property, in respect of the accumulated capital gain since 1971, on either spouse's return for the year, it is assumed that each spouse made the proper designation at that time. That being the case, no other property can be designated by either spouse in respect of taxation years prior to 1981.

The cottage property is owned solely by one of the spouses. For the purposes of the special 1994 capital gains election, that spouse is entitled to designate that property as his principal residence for the years since 1980 unless some other property has been so designated for any of those years.

Finally, the ownership of capital property is a question of fact. The best evidence of the ownership of real property is title registry along with the ability of the owner to finance its acquisition. Where only one spouse has the resources to acquire property and title is in the name of the other spouse an argument can be made in a particular case that the registry does not reflect the true ownership of the property. However, where each spouse has independent means of financing an acquisition of property, title registry would constitute the best evidence of ownership. Further comments on ownership of property can be found in interpretation bulletin IT-437R "Ownership of Property (Principal Residence)".

We trust our comments will be of assistance to you.

Yours truly,

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

c.c.Toronto North Tax Services