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 an individual would be considered to be the owner of his brother's house.
Position: No.
Reasons: The individual's name appeared on the mortgage of his brother's house only to help in obtaining financing. The individual would not be considered to have beneficial ownership.
XXXXXXXXXX 2008-027212
Charles Rafuse
613-247-9237
July 16, 2008Dear XXXXXXXXXX :
Re: Ownership of Property
This is in reply to your fax of March 26, 2008 and our telephone conversation (Rafuse/XXXXXXXXXX ) of June 4, 2008, concerning the ownership of property under the Income Tax Act (the "Act").
You have indicated that your brother's mortgage for his house came up for renewal in XXXXXXXXXX and the credit union would not renew the mortgage because he XXXXXXXXXX . Accordingly, he sold the house and approached you about securing a mortgage for him on another house. You agreed and he used the sales proceeds for his previous house as a down payment for the new house in XXXXXXXXXX for which you were to be the registered homeowner. You also indicated that your brother lives in the new house, using it as his principal residence, and that you have never lived there, never made a mortgage payment, never paid property taxes, and never paid for repairs or utilities. You further indicated that your only involvement regarding the new house was to put your name on the mortgage papers, as your brother could not obtain a mortgage on his own.
In XXXXXXXXXX , you attempted to obtain a mortgage on another property and were informed that you didn't qualify for the type of mortgage that you requested as you already had an existing mortgage. So you had to dispose of the mortgage on your brother's house. This was accomplished by having XXXXXXXXXX purchase from you the new house where your brother lives. The sales documents were signed in XXXXXXXXXX , and although a cheque for the sale was made out to you, any monies left over after paying off the mortgage in your name was signed over to your brother.
We understand that you are concerned that you might have to report a capital gain from the sale in XXXXXXXXXX of the house where your brother lives. In this regard, you contacted a CRA representative regarding the possible reporting of the capital gain and were advised to write to the Income Tax Rulings Directorate.
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. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to offer the following general comments.
Under the Act a taxpayer can reduce or eliminate a capital gain realized on the sale of a principal residence that the taxpayer owns by claiming the principal residence exemption. The capital gain is reported and the principal residence exemption is claimed by the taxpayer if the taxpayer has beneficial ownership of the principal residence. The principal residence exemption is discussed in Interpretation Bulletin IT120R6, Principal Residence, which is available on the CRA web site at www.cra-arc.gc.ca.
It is a question of fact whether a person owns a particular property and this can only be determined upon a review of all facts and documentation related to the property. In the common law jurisdictions, two forms of property ownership are recognized - legal and beneficial. Normally "legal ownership" exists when title is transferred to, recorded in, registered in or otherwise carried in the name of a person. The term "beneficial ownership" is used to describe the type of ownership of a person who is entitled to the use and benefit of the property whether or not that person has concurrent legal ownership. That is, one person's legal ownership of a property may be subject to another person's beneficial ownership of that property. A person who has beneficial ownership rights but not legal ownership can enforce those rights against the holder of the legal title.
In determining whether a person has beneficial ownership, one should consider such factors as the right to possession, the right to collect rents, the right to call for the mortgaging of the property, the right to transfer title by sale or by will, the obligation to repair, the obligation to pay property taxes and other relevant rights and obligations. Not all of these incidents of ownership need occur concurrently before it is concluded that the person has beneficial ownership of the property, which is a question of fact in each particular case.
While legal ownership and beneficial ownership are usually combined in one person, there are instances where they are not. In this regard, the intent of the parties as expressed in documents, their actions and handling of the property is vital for determining ownership. Based solely on the information in your letter, it is our understanding that both you and your brother intended that only your brother was to be the beneficial owner of the house where he lives and that by putting the house in your name you were simply acting as a guarantor to the lending institution in respect of the mortgage. If your brother was the beneficial owner of the property during the period that it was registered in your name we are of the opinion that you would not have to report a capital gain from the sale of the property XXXXXXXXXX .
We trust this information is helpful.
Yours truly,
S. Parnanzone
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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