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: Is the principal residence exemption available in respect of waterfront property that is land, where a taxpayer resides in a principal residence that is a houseboat.
Position: No.
Reasons: A houseboat that rests upon water does not have identifiable subjacent or contiguous land due to the essence of its mobility.
2008-027133
XXXXXXXXXX James Atkinson CGA
(519) 457-4832
June 4, 2008
Dear XXXXXXXXXX :
Re: Principal Residence Exemption - Houseboat
This is in response to your letter of January 31, 2008, and our subsequent telephone conversation (Atkinson/XXXXXXXXXX ) on May 5, 2008, concerning the principal residence exemption.
You described a situation where your former residence was sold in 1999. At that time you acquired a "float home" and moored it at a private dock beside a 2 and 1/2 acre waterfront property (the "Waterfront Property") that was concurrently owned. The float home had amenities such as a kitchen, 2 bathrooms, 2 bedrooms, a dining room and lounge area along with an outside patio. The float home is mobile and is powered by twin engines. Water and electricity for the float home was supplied from sources on the Waterfront Property. In 2006, you sold the Waterfront Property and have moved to a townhouse, where you now reside. However, you have retained ownership of the float home.
You have requested an opinion as to whether the principal residence exemption, provided for under paragraph 40(2)(b) of the Income Tax Act ("Act"), may be claimed against the capital gain arising as a consequence of the disposition of the Waterfront Property.
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 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Although we cannot comment on your specific situation, we are prepared to provide the following general comments, which may be of assistance. The conditions necessary to qualify for the principal residence exemption, which can eliminate or reduce a capital gain on the disposition of a taxpayer's principal residence, are discussed in detail in IT-120R6 - Principal Residence, available on the CRA website at www.cra-arc.gc.ca.
The expression "Principal residence" is defined in section 54 of the Act. The definition includes, among other things, a property that is a housing unit that the individual (or certain family members) ordinarily inhabited in the year. In general, a particular property can be considered an individual's principal residence for a taxation year, if the property:
- is a housing unit;
- is owned by the taxpayer (whether jointly with another person or otherwise);
- was ordinarily inhabited in the year by the taxpayer, the taxpayer's spouse, common-law partner, former spouse or common-law partner, or child; and
- is the only property designated by the taxpayer as the taxpayer's principal residence and no other property was so designated as the principal residence of any member of the taxpayer's family unit.
The term "housing unit" is not defined in the Act; however the term has been given a broad meaning in jurisprudence. Paragraph 3 of IT-120R6 lists types of properties that are considered "housing units" and these include a houseboat.
Specifically regarding the land pertaining to a housing unit, paragraph (e) of the definition of principal residence in section 54 of the Act provides that 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. In addition, paragraph (e) of the definition provides that where the total area of the subjacent and contiguous 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. The CRA position and the relevant factors for making such determination are set out in paragraphs 14 to 17 of IT-120R6.
Regarding the situation you described, in our view, the float home qualifies as a housing unit and may be designated as a principal residence for a particular year if it was ordinarily inhabited in the year and the other conditions of the definition of principal residence in section 54 of the Act, which are explained in IT-120R6, are satisfied. Therefore, any capital gain from the disposition of the float home itself, if designated as a principal residence, may be reduced or eliminated by the principal residence exemption. However, since the float home rests in a body of water and is not situated on the Waterfront Property, the land comprising the Waterfront Property cannot be considered to be part of the float home as a principal residence. Accordingly, the capital gain from the disposition of the Waterfront Property cannot be reduced or eliminated by the principal residence exemption. In reaching our opinion regarding the Waterfront Property, we considered the comments of the Federal Court - Trial Division ("FCTD") in Windrim [91 DTC 5221]. In Windrim, the FCTD considered a claim for the principal residence exemption on the sale of land where the housing unit was a mobile trailer.
The FCTD had difficulty accepting that there was any subjacent and contiguous land in respect of the trailer to the extent that the trailer itself was accepted to be a housing unit and designated as a principal residence. The FCTD commented in its analysis as follows:
Here, the plaintiff did not build his home, but rather placed a couple of trailers which, it appears were never affixed to and part of the realty, such that one doubts if they or it (the plaintiff's one housing unit at a time) ever really had any land subjacent to it or any immediately contiguous land. Giving the taxpayer the benefit of any doubt on that score, the Court locates the taxpayer's housing unit as the place upon which the 35-foot mobile home was temporarily resting prior to the purchase, but truly that is an evanescent finding because that mobile would-be housing unit was sold separately from the land. It really does not qualify, in these circumstances, as a housing-unit which can be fixed upon the land claimed as the plaintiff's residence, because there was way so much more land than was needed for the mobile home, which was in no way confined to any one place upon it.
.......................
In the present case there is a further complication. Where the taxpayer's/homeowner's housing unit is a mobile home which is capable of going whither he or she goes, how can one readily identify any "land subjacent to [that] housing unit and such portion of any immediately contiguous land as may reasonably be regarded as contributing to the taxpayer's use and enjoyment of [that] housing unit? That mobile home was capable not only of being moved off the Baker Road property (as, in fact, transpired through separate sale) but of being moved anywhere within the Baker Road property. Exhibit 4, the plaintiff's own sketch shows the mobile home to have been set beside the reservoir or little lake shown in exhibits 3(1) and 4). There is a doubtful probability that it sat there just before the disposition in March, 1982, because of the telephone and hydro power line shown extending from the boundary of the lot to the place where the mobile home rests, or rested. This is an inference on the probabilities of exhibit 4 only. There is no direct evidence that the housing unit was even present when the separate disposition of the land was effected: but, the probabilities of sales of land cry out for the clear removal of all of the vendor's chattels, that is his "housing unit", his camper and the other separately sold trailer, before the buyer takes possession of the land.
Not unlike the situation in Windrim, we envision difficulties finding that the float home has any contiguous land necessary to its use and enjoyment, as the essence of the float home as a housing unit is mobility. Moreover, the situation of a float home, moored lakeside to the Waterfront Property appears to be even further removed from the circumstances in Windrim.
In conclusion, based on the facts you described and the rationale provided in Windrim, it is our view that no principal residence exemption is available under paragraph 40(2)(b) of the Act in respect of the disposition of the Waterfront Property.
We trust that these comments will be of assistance.
Yours truly,
S. Parnanzone
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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