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
XXXXXXXXXX 980197
M. Eisner
March 23, 1998
Dear XXXXXXXXXX:
Re: Principal Residence Exemption
This is in reply to your letter of December 7, 1997, concerning the above-noted subject. We apologize for the delay in replying.
In your letter, you indicated that you and your spouse purchased 18.15 acres of barren land in 1975 as a site for the construction of your home, which pursuant to a by-law, was the smallest size that could be purchased. You proceeded to construct your residence on the front part of the land. A creek runs through the back part of the land which is swampy although you have indicated that you and your family are accustomed to using the entire land for the enjoyment of the residence. The purpose in acquiring the land was to enjoy the benefits of living in a country residence. The land has not been used to earn income.
It is now possible for you and your wife to subdivide the land into four lots. As the property is no longer considered to be located in a quiet country setting, you propose to sell it. However, as a result of the nature of the land, it would be subdivided into two lots which would be sold individually. In the alternative, the entire property may be sold without being subdivided.
You have asked us about the principal residence exemption.
Our Comments
Your letter requests an advance income tax ruling to the effect that 18.15 acres of land (together with a dwelling situated thereon) owned by yourself and XXXXXXXXXX would represent a “principal residence”. The procedures for requesting an advance income tax ruling are set out in Information Circular 70-6R3, a copy of which is enclosed for your reference. With respect to the question asked, we are not prepared to rule (or provide a definitive opinion) because it is question of fact as to whether or not a particular property constitutes a principal residence as at a given time and for the relevant past years. The Department cannot rule on principal residence status for past years. As such a determination requires a review of all the facts of a particular case, your local Tax Servcies Office is in a better position to provide you with assistance in this regard. However, we are prepared to offer the following general comments.
The comments in IT-120R4 “Principal Residence” 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. As you are aware, paragraphs 21 to 23 in IT-120R4 set out general comments in respect of land in excess of 1/2 hectare. We also note that the comments in paragraph 22 of that bulletin on a legally imposed minimum lot size exceeding 1/2 hectare only relate to a situation where residential zoning is involved. As a further comment, it is our general view that the fact that an individual makes use of more than 1/2 hectare of land in connection with a particular lifestyle does not, in itself, mean that it is necessary for the use and enjoyment of the housing unit as a residence.
For general comments on the situation where an individual’s housing unit is situated on land in excess of 1/2 hectare and part of the excess is severed from a property and sold, we refer you to paragraph 23 of IT-120R4. Consistent with the comments in paragraph 23 of IT-120R4, it is also our general view that if an individual’s housing unit is situated on land in excess of 1/2 hectare and it is feasible to sever part of the excess that is vacant land, this could be an indication that the vacant land was not necessary for the use and enjoyment of the housing unit as a residence even though the whole property was sold.
As mentioned in paragraph 21 of IT-120R4, it is a question of fact in all cases as to how much, if any, of the excess land is necessary for the use and enjoyment of the housing as a residence and the onus is on you to establish that land in excess of 1/2 hectare was necessary for the use and enjoyment of the housing unit as a residence.
We trust that our comments will be of assistance to you.
Yours truly,
Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
