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.
Principal Issues: Would the proceeds from the sale of a vacant lot held in a bare land strata be treated as a disposition of part of the respective principal residences for each of the strata owners?
Position: Question of fact and of law. Does not appear to meet the definition of principal residence.
Reasons: Insufficient information to conclude if vacant lot was required to be acquired by home owners in the strata and whether this would be sufficient to qualify it as part of their principal residences.
2004-007540
XXXXXXXXXX Allan Nelson, C.M.A
(613) 443-7253
November 15, 2004
Dear XXXXXXXXXX:
Re: Principal Residence Exemption - Sale of Common Property
Technical Opinion Request
This is in reply to your April 24, 2004, letter and our telephone conversations with you and your husband on October 13, 2004 (Nelson/XXXXXXXXXX) and October 15, 2004 (Nelson/XXXXXXXXXX), where you requested a technical interpretation concerning the definition of principal residence in section 54 of the Income Tax Act (the "Act") in a situation involving a vacant lot in a bare land strata plan.
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 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the transactions are completed, the enquiry should be submitted along with all relevant facts and documentation to your local Tax Services Office for their views. However, we are prepared to provide you with the following general comments, which may be of some assistance to you.
The situation described in your letter appears to be somewhat unusual and involves complex legal and factual issues, which must be resolved/clarified to establish the tax consequences of the sale of the vacant lot. A review of all relevant provincial legislation would have to be undertaken and all pertinent facts would have to be known (e.g., details of the strata plan filed with the government, particulars regarding local municipal zoning bylaws at relevant times (past & present), accurate facts surrounding the history of the property including the expropriation, house demolition, green space requirements, etc.) to determine if the sale of the vacant lot could be treated as a disposition of part of the strata owners' principal residences.
A taxpayer's capital gain from the sale of their "principal residence" can be exempt from taxation under the rules in paragraph 40(2)(b) of the Act.
To be a principal residence, within the meaning of section 54 of the Act, amongst other requirements, the property must be a housing unit that was ordinarily inhabited in the year by the taxpayer. Paragraph (e) of this definition also states in part
(e) the principal residence of a taxpayer for a taxation year shall be deemed to include...the land subjacent to the housing unit and such portion of any immediately contiguous land as can reasonably be regarded as contributing to the use and enjoyment of the housing unit as a residence...
Paragraphs 5 and 14 of our Interpretation Bulletin IT-120R6 Principal Residence, reiterate these requirements (copy enclosed for your convenience).
From the limited facts provided, our preliminary view is that the sale of the vacant lot would not qualify as a sale of a portion of the strata owners' principal residences. This is so because the vacant lot was not "ordinarily inhabited" by the strata owners and we have insufficient evidence to demonstrate the vacant lot was "land subjacent to the [respective] housing unit" or was "such portion of any immediately contiguous land as can reasonably be regarded as contributing to the use and enjoyment of the [respective] housing unit as a residence", as required by the definition of principal residence in section 54 of the Act.
We acknowledge that there may be situations, such as those discussed in paragraphs 15 to 17 of Interpretation Bulletin IT-120R6, where certain "excess" land may qualify as part of a principal residence. For example, excess land may qualify when, in order to acquire a property as a residence, municipal laws or regulations required the purchase of the excess land (see paragraph 16 of Interpretation Bulletin IT-120R6 for further details). However, we do not have adequate information at this time to conclude that this was the case in your situation.
Given the complexity of the legal and tax issues involved in this matter, you may want to consider consulting with an independent legal and/or tax professional.
We hope the above will be of assistance to you.
Yours truly,
Milled Azzi, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch
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