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:
Taxpayer wishes to subdivide one-acre property and sell one-half acre. Taxpayer enquired as to income tax consequences.
Position TAKEN:
Question of fact, although likely will result in taxable capital gain or capital loss. If remaining portion of property contains the taxpayer's principal residence, all or a portion of any resulting capital gain may be exempt if it "can reasonably be regarded as contributing to the use and enjoyment of the housing unit as a residence".
Reasons FOR POSITION TAKEN:
The definition of principal residence in section 54 of the Act.
XXXXXXXXXX 2001-008175
T. Young, CA
June 5, 2001
Dear XXXXXXXXXX:
Re: Sale of Land
This is in reply to your letter to the Winnipeg Tax Services Office, which was forwarded to us on April 12, 2001, as to whether the sale of a parcel of land would be subject to the Goods and Services Tax (GST) and whether the proceeds would be considered taxable income. Our understanding is that the Winnipeg Tax Services Office has already answered your question with respect to the GST.
In your letter, you state that a residential property owner, who owns and lives on a one-acre piece of land, is proposing to subdivide the property and sell approximately 0.5 acres of the property containing no dwellings. The owner of the land:
- is not self-employed,
- does not sell real estate for a living,
- does not use the residential property for any business, and
- does not own any other property.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R4, Advance Income Tax Rulings, dated January 29, 2001. Also, it would be necessary to review all relevant documentation before an actual determination of the income tax implications could be made. However, we can provide you with the following general comments.
As indicated in Interpretation Bulletin IT-120R5, "Principal Residence" (copy enclosed), the capital gain from the disposition of a principal residence is generally exempt from income taxation. To the extent that a portion of a property does not qualify as being part of the principal residence, the related capital gain would be taxable. Under the definition of principal residence in the Income Tax Act, if the total area of the contiguous land upon which a housing unit is situated exceeds one-half hectare (approximately 1.23 acres), the excess land is considered not to be part of the principal residence unless the taxpayer establishes that such excess land is necessary for the use and enjoyment of the housing unit as a residence. If the land is one-half hectare or less, as in the situation you describe, the sale will be exempt from income taxation if it can reasonably be regarded as contributing to the use and enjoyment of the housing unit as a residence.
As discussed in paragraph 18 of the interpretation bulletin, where only a portion of a property qualifying as a taxpayer's principal residence is disposed of, the property may be designated as the taxpayer's principal residence in order to use the principal residence exemption for the portion of the property disposed of. It is important to note that such a designation is made on the entire property (including the housing unit) that qualifies as the principal residence, and not just on the portion of the property disposed of. Accordingly, when the remainder of the property is subsequently disposed of, it too will be recognized as the taxpayer's principal residence for the taxation years for which the above-mentioned designation was made. No other property may be designated as a principal residence for any of those years by the taxpayer (or, for any of those years that are after the 1981 taxation year, by the taxpayer or any of the other members of his or her family unit).
We trust that the forgoing comments are of assistance to you.
Yours truly,
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
Encl.
c.c. F. S. Adair, Winnipeg Tax Services Office
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