27 February 2001 External T.I. 2000-0046755 - Rent Free Occupancy of 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 a taxable benefit under either 105(1) or (2) is imposed on a beneficiary of an estate for living "rent free" in property of the deceased where the property would have qualified as the beneficiary's principal residence if she had owned it.

Position: no benefit provided that upkeep is paid out of capital and the property would have been the principal residence of the life tenant if the life tenant had owned the property

Reasons: 105(2) only applies if the upkeep is paid out of the income of the trust and as stated at the 1988 & 1989 CTF conferences, the ccra will generally not assess a 105[1] benefit if the property would qualify as the life tenant's principal residence if the life tenant had owned it

XXXXXXXXXX 	2000-004675
		Annemarie Humenuk
February 27, 2001

Dear XXXXXXXXXX:

Re: XXXXXXXXXX

This is in reply to your letter of May 16, 2000, addressed to the XXXXXXXXXX Tax Services Office, in which you ask us to confirm that neither subsection 105(1) nor (2) of the Income Tax Act will apply to the spousal beneficiary of the above-noted estate occupying a residence owned by the estate. The XXXXXXXXXX Tax Services Office has asked us to respond to your query. We apologize for the delay in our response.

All statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended.

You advise that the taxpayer's will provides that his spouse may occupy the family residence for the remainder of her life and that the cost of upkeep and maintenance of the property is to be paid out of the residue of the estate. You ask for confirmation that the spouse will not be required to include any amount in income as a result of occupying the property, provided that the cost of the upkeep and maintenance of the property is paid out of the capital of the estate and the property would have qualified as her principal residence for each year in which she occupies it if she had owned it.

As discussed in our telephone conversation of February 19, 2001 (XXXXXXXXXX\Humenuk), we are unable to provide confirmation of the tax consequences of a particular transaction without a review of all the relevant facts and documentation, which in this case would include a copy of the will. The procedures for obtaining the Canada Customs and Revenue Agency's (the "CCRA's") views on completed transactions and proposed transactions are set out in paragraph 22 of Information Circular 70-6R4, Advance Income Tax Rulings. Nevertheless, we offer the following general comments which may be of assistance to you.

Subsection 105(2) provides that amounts paid by a trust out of the income of the trust for the upkeep, maintenance and taxes of a property required to be maintained for the use of a life tenant are included in the income of the life tenant for the taxation year in which they are paid. This subsection applies regardless of whether the property would have qualified as the principal residence of the life tenant if the life tenant had owned the property.

Where amounts are paid out of the capital of the trust for upkeep, maintenance or taxes, such amounts may be included in the income of the life tenant under subsection 105(1). However, as indicated in response to question 69 at the 1988 Canadian Tax Foundation conference, the CCRA would generally not seek to assess a subsection 105(1) benefit to a life tenant for the rent-free use of a property which would be a principal residence of the life tenant if the life tenant had owned the property. Please note that, as stated at that conference, factors such as the part-time rental of the property may complicate the determination of whether a benefit should be applied.

We trust our comments will be of assistance.

Yours truly,

T. Murphy
for Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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