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: If a taxpayer disposes of two properties in the same taxation year and both properties are designated principal residences (for different years) for purposes of the Act, can both properties take advantage of the "one-plus" rule in paragraph 40(2)(b) of the Act?
Position: Yes.
Reasons: Paragraph 40(2)(b) applies on a property-by-property basis. Where a taxpayer disposes of both a city home and a cottage in the same taxation year, both properties may take advantage of the "one-plus" benefit provided all other requirements of paragraph 40(2)(b) and the definition of "principal residence" in subsection 54(1) of the Act have been met.
2004-008803
XXXXXXXXXX Karen Power, CA
(613) 957-8953
November 16, 2004
Dear XXXXXXXXXX:
Re: Principal Residence
We are writing in reply to your letter of July 27, 2004, requesting our comments on the interpretation of paragraph 40(2)(b) of the Income Tax Act (the "Act").
The particular circumstances in your letter on which you have asked for our views involve a factual situation concerning a specific taxpayer. As explained in Information Circular 70-6R5, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. However, we are prepared to offer the following general comments, which may be of assistance.
Paragraph 10 of Interpretation Bulletin IT-120R6 provides that while only one property may be designated as a taxpayer's principal residence for a particular taxation year (as explained in paragraph 6 of the bulletin), the principal residence exemption rules recognize that the taxpayer can have two residences in the same year, i.e., where one residence is sold and another acquired in the same year. The effect of the "one plus" in variable B of paragraph 40(2)(b) of the Act is to treat both properties as a principal residence in such a year, even though only one of them may be designated as such for that year.
Similarly, we would agree that where a taxpayer disposes of both a city home and a cottage in the same taxation year and both have been designated as a principal residence for different years, both properties may take advantage of the "one-plus" benefit in variable B of paragraph 40(2)(b) of the Act provided all other requirements of paragraph 40(2)(b) and the definition of "principal residence" in section 54 of the Act have been met.
Copies of Information Circulars and Interpretation Bulletins are available from your local tax services office or on the Internet at the following site - http://www.cra-arc.gc.ca/formspubs/type/menu-e.html.
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 Planning Branch
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