25 October 2005 External T.I. 2005-0125521E5 - Principal Residence Land in Excess of 1/2 Hectare

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: Whether a particular property with an area of XXXXXXXXXX acres, which is agricultural land reserve property and cannot be subdivided, can be designated as a principal residence.

Position: Yes.

Reasons: Question of fact.

2005-012552
XXXXXXXXXX Eliza Erskine
(613) 954-3199
October 25, 2005

Dear XXXXXXXXXX:

Re: Principal Residence - Land in Excess of One-Half Hectare

We are writing in response to your facsimile correspondence with the XXXXXXXXXX Taxation Services Office, regarding the above-noted subject matter, which was forwarded to us for reply. You asked for a ruling that all of your property (plan number XXXXXXXXXX), referred to after this as the "Property"), can be designated as your principal residence, notwithstanding that it has a total area of approximately XXXXXXXXXX acres. We cannot provide you with a binding advance income tax ruling under the circumstances (please see our Information Circular 70-6R5, Advance Income Tax Rulings, for details on how to request a binding ruling and, in particular, what kind of documentation is required). However, we are prepared to review and comment on your specific situation, which we hope will be of assistance to you and give you some assurance with respect to how the Canada Revenue Agency (the "CRA") will view your designation of the Property as a principal residence.

Our Comments

The term "principal residence" is defined in section 54 of the Income Tax Act (the "Act"). Section 54 states, in part, that

"where the total area of the subjacent land ... exceeds 1/2 hectare, the excess shall be deemed not to have contributed to the use and enjoyment of the housing unit as a residence unless the taxpayer establishes that it was necessary to such use and enjoyment".

It is always a question of fact whether land in excess of 1/2 hectare is necessary to the use and enjoyment of a housing unit as a residence. As discussed in paragraph 15 of Interpretation Bulletin IT-120R6, Principal Residence ("IT-120R6") factors that are considered by the CRA in determining this question of fact include:

? the size or character of the housing unit together with its location on the lot;
? whether the extra land is necessary for access to and from public roads; and
? whether there is a minimum lot size or a severance or subdivision restriction associated with the lot.

In your correspondence with the XXXXXXXXXX TSO you stated that you have owned and resided on the Property since XXXXXXXXXX, that the Property is located in an agricultural preserve and cannot be subdivided, and that the Property has never been used for commercial enterprise. Based on these facts, we are of the view that the Property as a whole can be designated as your principal residence. The character of the land as part of the agricultural land reserve and the fact that the land cannot be subdivided are strong factors in favour of such a designation, especially in light of your long-term, continuous use of the Property as a home.

We trust that our comments are of assistance to you. We note that all CRA Interpretation Bulletins, Information Circulars, Forms, and Guides can be found on the CRA website at www.cra.gc.ca under "Forms and Publications".

Yours truly,

Eliza Erskine
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch