23 February 1998 External T.I. 9800205 - 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:

Principal Residence - land in excess of 1/2 hectare

Position:

Law generally explained

Reasons:

Specific facts and documentation not available

980020
XXXXXXXXXX M. Eisner

February 23, 1998

Dear XXXXXXXXXX:

Re: Principal Residence Exemption

This is in reply to your letter of December 7, 1997, concerning the above-noted subject.

You indicated that you purchased approximately 40 acres of raw land in 1968 as a site for the construction of your home. You have also enclosed information that you received from the XXXXXXXXXX (the Commission). The information from the Commission refers to a Highway Develop Area (HD) and Extended Urban Area (EU). Both the EU and HD indicate that the minimum area of a parcel of land is 20 acres although the area can also include provision for roads and public reserves.

In relation to the above information, you have referred to comments in paragraph 22 of Interpretation Bulletin IT-120R4 “Principal Residence” which state “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.” As a result of these comments, you have asked whether 20 of the 40 acres are eligible for the principal exemption.

Our Comments

We are providing you with general comments as it would be necessary to review all the relevant facts and documentation in order to determine the tax consequences of the above situation.

The comments in IT-120R4 are based on the definition of "principal residence" in section 54 of the Income Tax Act. Under that definition, if the total area of the contiguous land upon which a housing unit is situated, exceeds 1/2 hectare, the excess land is considered not to have contributed to the use and enjoyment of the housing unit as a principal residence, unless it is established that the land in excess of 1/2 hectare was necessary for such use and enjoyment. The onus is on you to demonstrate that aspect. An important consideration is how the land was used during the period of ownership. If any portion was used, for example, for income producing purposes, it may not be considered necessary for the use and enjoyment of the housing unit.

As a further comment, we note that the above excerpt from paragraph 22 only relates to a situation where residential zoning is involved and that, in any particular situation, it may be necessary to consider other factors.

We trust that our comments will be of assistance to you.

Yours truly,

John F. Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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