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, for the purposes of the principal residence exemption in paragraph 40(2)(b) of the Income Tax Act (the "Act"), condos #1 and #2 can be considered one "principal residence" as defined in section 54 of the Act.
Reasons: See response
XXXXXXXXXX André Gallant
June 8, 2009
Dear XXXXXXXXXX :
Re: Principal residence
This is in response to your letter of January 9, 2009, and is further to our telephone conversation on April 24, 2009 (Gallant/XXXXXXXXXX ), regarding the principal residence exemption in paragraph 40(2)(b) of the Income Tax Act (Canada) (the "Act").
Our understanding of the facts is as follows:
1. In XXXXXXXXXX , the Taxpayer purchased a condominium in an apartment building ("condo #1"). The Taxpayer's condo #1 is located next door to her mother's condominium ("condo #2").
2. In order to make it easier for the Taxpayer to take care of her mother, it was decided shortly thereafter to do certain renovations to condos #1 and #2. The necessary permits and approvals for such construction were obtained from the Municipality and the Strata Council.
3. The renovations involved the following work:
a. opening up part of the common wall (about the size of a door entrance);
b. making minor adjustments to the kitchen in condo #1 in order to use the space as an office instead of a kitchen. This former kitchen area can however be made into a kitchen again without substantial work, i.e. the outlets, sink and cabinets are still present;
c. re-configuring the area to expand the kitchen in condo #2; and
d. enlarging the master bedroom and ensuite bathroom in condo # 1.
Following the renovations, condos #1 and #2 continue to have two addresses, two separate entrance doors and two legal descriptions. The two condominiums were not legally merged into one unit, according to the Taxpayer, to avoid the expenses involved with the merger and to allow any future purchaser of the condominiums the option of re-configuring the living space into two separate housing units.
4. In XXXXXXXXXX , the Taxpayer's mother passed away, and the legal ownership of condo #2 was transferred to the Taxpayer.
You asked whether, for the purposes of the principal residence exemption in paragraph 40(2)(b) of the Act, condos #1 and #2 can be considered one "principal residence" as defined in section 54 following the death of the Taxpayer's mother.
Condo #1 was the Taxpayer's principal residence from XXXXXXXXXX (date the Taxpayer acquired condo #1) until the mother's death, and when her mother passed away and ownership of condo #2 passed to the Taxpayer, condos #1 and #2 became a single housing unit and the Taxpayer's principal residence.
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 (the "TSO"). We are, however, prepared to offer the following general comments, which may be of assistance.
The Taxpayer can designate one housing unit as a principal residence for purposes of the principal residence exemption under paragraph 40(2)(b).
The expression "principal residence" is defined in section 54 as:
"...a particular property that is a housing unit, a leasehold interest in a housing unit or a share of the capital stock of a co-operative housing corporation acquired for the sole purpose of acquiring the right to inhabit a housing unit owned by the corporation and that is owned, whether jointly with another person or otherwise..."
The expression "housing unit" (or "logement" in the French version of the Act) is not defined in the Act. Since there are no technical and/or legal meanings for this expression, we must refer to the common and ordinary meaning of the terms, which includes dictionary definitions. Based on definitions in different English and French dictionaries, 1 it is our understanding that a housing unit normally refers to a room, or a group of rooms, occupied by a person or group of persons, and includes kitchen, bathrooms, etc.
Whether condos #1 and #2 could together be considered one single housing unit, or whether they should be considered two separate housing units is a question of fact that can only be determined after a review of all of the relevant circumstances. However, two units will generally be considered one housing unit if they are sufficiently integrated such that one cannot enjoy the living accommodation of one unit without the use and access to the other unit.
If each of the two units could be normally inhabited without too many renovations and without having access to the other unit (e.g., each unit has a kitchen and a bathroom, and each unit as a separate entrance door), it would be difficult to consider these two units to be one single housing unit that can be designated as principal residence within the meaning assigned in section 54.
To determine whether two condominium units constitute one housing unit, factors to be considered include the extent of integration of the two units (e.g., if one of the two units contains all the bedrooms and the other unit contains the kitchen and bathrooms, and both units are really used for living accommodation as one housing unit), whether or not the units have separate legal titles, separate municipal addresses, separate entrance doors, and separate accounts for utilities and other public service providers.
Applying the above to the facts provided regarding condos #1 and #2, we conclude that the two condos do not constitute one housing unit for purposes of the principal residence exemption. In particular, in our view, the renovations of condos #1 and #2 are not such that they are integrated to function only as one unit.
We trust that these comments will be of assistance.
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
1 D.A. Dukelow and B. Nuse, The Dictionary of Canadian Law (Scarborough: Carswell, 1991); Pierre et François Choay, Le dictionnaire de l'urbanisme et de l'aménagement (Paris: Presses universitaires de France, 1988); Le Nouveau Petit Robert (Paris: Dictionnaires le Robert, 1995).
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