24 October 2001 External T.I. 2001-0088295 - RESIDENCES OWNED PRIOR TO 1982

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: Two individuals, who are spouses and have owned a cottage and a home since some time prior to 1972, have asked about designating the two units with respect to the principal residence exemption for the years 1972 to 1981 (these two individuals have no plans to sell either of the two properties at his time).

Position: It is not possible to designate the two properties at this time. Some general comments with respect to the eventual designation of two properties were also provided.

Reasons: Pursuant to Regulation 2301, a taxpayer's designation of a property as a principal residence for one or more taxation years is to be made in his or her income tax return for the taxation year in which he or she has disposed of the property or granted an option to another person to acquire the property.

XXXXXXXXXX 2001-008829
M. Eisner, CA
October 24, 2001

Dear XXXXXXXXXX:

Re: Principal Residence Exemption

Your letter of March 15, 2001, which concerns the above-noted subject, has been referred to us for reply.

You have indicated that it is your understanding that, for the years 1972 to 1981, a family could designate more than one principal residence for income tax purposes. Your letter also indicates that you and your spouse own a residence and a cottage (we have not been provided with details as to whether the properties are owned jointly or individually) and although there are no plans to sell either property at this time, you have asked about designating both properties at this time as principal residences for the years 1972 to 1981.

Our Comments

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. Where the particular transactions are completed 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.

According to section 2301 of the Income Tax Regulations (see paragraph 6 of IT-120R5), a taxpayer's designation of a property as a principal residence for one or more taxation years is to be made in his or her income tax return for the taxation year in which he or she has disposed of the property or granted an option to another person to acquire the property. It follows that until such a disposition has occurred or such option has been granted, a designation of the property as a principal residence cannot be made.

As discussed in paragraphs 6 and 11 of IT-120R5, a property may not be designated as a taxpayer's principal residence for any taxation year after 1981 if another property has been designated for that year as the principal residence of another member of his or her family unit (see paragraph 6 of IT-120R5). In other words, only one residence can be designated for a taxation year after 1981 by a family unit. That restriction does not apply to years prior to 1982; however, for those years a taxpayer can only designate one property as his or her principal residence for any given year. Thus, if a husband and wife owned two residences in years prior to 1982, each of these two individuals, assuming they otherwise qualified, could designate one of the residences with respect to those years. Nonetheless, this does not necessarily mean that no gain will need to be reported by both spouses for those years on the disposition of the two residences (since, for example, as noted in paragraph 8 of IT-120R5, if a property owned by both spouses is disposed of, each generally has a gain, to which he or she can apply the principal residence exemption, if applicable). Accordingly, in order to comment on a particular situation, it is necessary to have all the relevant facts including the type of ownership (e.g., joint ownership with another person or otherwise) from the end of 1971 up to the current time. Should you wish to pursue this matter, you may contact your local Tax Services Office.

We note 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.

We trust that our comments are of assistance to you.

Yours truly,

Milled Azzi, CA
for Director
Business and Partnerships Division
Income Tax Rulings
Policy and Legislation Branch
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