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: The issue is whether an individual "ordinarily inhabited" a housing unit (a cottage) for the purposes of the definition of "principal residence" in section 54 of the Income Tax Act.
Position: General comments were provided.
Reasons: The review of fact situations fall with in the purview of Tax Services Offices.
XXXXXXXXXX 2001-008392
M. Eisner, CA
August 22, 2001
Dear XXXXXXXXXX:
Re: Principal Residence Exemption
This is in reply to your letter of May 3, 2001, concerning the above-noted subject.
You have referred to a situation where an individual ("Individual A") and his sister owned a cottage in XXXXXXXXXX, Ontario until some time in the year 2000 when it was sold. In connection with the cottage, you indicated that Individual A lived in the XXXXXXXXXX area until the early 1980s when he began to live part of the time in XXXXXXXXXX although he continued to live for about three nights a week at the cottage. The Individual also spent his summer vacations at the cottage. In June of 2000, the individual and his sister purchased a new home in XXXXXXXXXX, which is now the individual's permanent residence as he lives there with his sister and his mother.
You have asked us whether the cottage can be considered to be the principal residence of Individual A up to the time it was sold.
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 income tax ruling request submitted in the manner set out in Information Circular 70-6R4 (enclosed). Where the particular transactions are completed, as in the above situation, the enquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments, which are general in nature.
The Canada Customs and Revenue Agency's position on the principal residence exemption is set out in Interpretation Bulletin IT-120R5. We have enclosed a copy of the interpretation bulletin for your information.
One of the requirements for a property to qualify as the principal residence of a taxpayer for a taxation year is that the housing unit (a housing unit can include a cottage) must have been ordinarily inhabited in the year by, inter alia, the taxpayer, the taxpayer's spouse or former spouse, or the taxpayer's child. A cottage is considered to be ordinarily inhabited by such a person, even though the person occupies the property for only a short period of time in the year (e.g., during vacation), provided that the principal reason for owning the property is not for the purpose of gaining or producing income. Incidental rental income will not prevent a cottage from qualifying as a principal residence (see paragraph 5 of IT-120R5).
It should also be noted that, if the land on which the housing unit is situated is one-half hectare or less, it will usually qualify as part of the taxpayer's principal residence. Land in excess of one-half hectare may also qualify, but only to the extent that it is established by the taxpayer to be necessary for the use and enjoyment of the housing unit as a residence. Paragraphs 14 to 16 of IT-120R5 provide additional information on this issue.
If you require further assistance, you may contact your local Tax Services Office.
We trust that our comments are of assistance to you.
Yours truly,
Milled Azzi, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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