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: Father purchased home for daughter -- daughter has lived in the home and paid all the expenses since that time. Can property be transferred to daughter without tax consequences as she has been the beneficial owner since the property was acquired.
Position: General comments only -- question of fact.
Reasons: Consistent with previous answers and IT 437R
2008-028246
XXXXXXXXXX C. Ritchie
(613) 952-1506
November 17, 2008
Dear XXXXXXXXXX :
Your letter of March 26, 2008, that was received at the Calgary Tax Services Office on July 25, 2008, was forwarded to this office for reply. We apologize for the delay in responding.
Your letter describes a situation where you purchased a home for your eldest daughter in XXXXXXXXXX . The daughter has lived in it since the purchase. She has maintained the home and paid substantially all of the expenses since that time. In your view, your daughter is currently the beneficial owner of this property and has been the beneficial owner since its purchase.
Your question concerns whether you can transfer the home to your daughter without generating a capital gain on the transfer.
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 Income Tax Act (Act), a capital gain accrued on a property arises when there is a disposition of the property. Generally, a disposition does not occur for tax purposes if there is a transfer of title that is not accompanied by the transfer of beneficial ownership. In other words, generally under the Act a disposition occurs if there is a transfer of beneficial ownership.
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. Legal owners are generally entitled to enforce their ownership rights against all other persons. In contrast, 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.
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. The determination of whether a person beneficially owns a property is a question of fact that can only be determined after a review of all the documents and the circumstances applicable to a particular situation.
The primary attributes of beneficial ownership include possession, use and risk. Therefore, in determining whether a person has beneficial ownership in a property, 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.
Useful comments relating to the concepts of "beneficial ownership" and "legal ownership" can be found in Interpretation Bulletins IT-437R, Ownership of Property (Principal Residence), and IT-170R, Sale of Property - When Included in Income Computation. These publications are available on the Canada Revenue Agency's website at www.cra.gc.ca.
You have also asked when the principal residence rules changed such that a married couple (not separated) could no longer each claim the principal residence exemption in respect of separate properties. These rules changed in 1981. More information regarding the principal residence can be found in Interpretation Bulletin IT-120R6, Principal Residence, which is available on the CRA website.
We trust that the foregoing comments will be of assistance to you.
Yours truly,
S. Parnanzone
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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