2 December 2009 Ministerial Correspondence 2009-0341881M4 - Capital Gains

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: Can the sale of a vacant lot be exempt from GST but the gain subject to income tax?

Position: Yes.

Reasons: In the case at hand, the sale of the vacant lot is exempt from GST by virtue of subsection 9(2) of Part I of Schedule V to the Excise Tax Act because the lot was for personal use. For income tax purposes, all taxable capital gains, including gains on disposition of property that the taxpayer had acquired for personal use are subject to tax unless a specific provision applies to give a different result. In the situation at hand, the principal residence exemption [ITA subsection 40(2)] does not apply to reduce or eliminate the capital gain realized on the sale of the taxpayer's vacant lot.

December 2, 2009

XXXXXXXXXX

Dear XXXXXXXXXX :

The office of the Honourable James M. Flaherty, Minister of Finance, forwarded to me a copy of your correspondence concerning capital gains and goods and services tax (GST) as related to the sale of your vacant lot. Please accept my apology for this delayed reply.

From your correspondence I understand that in XXXXXXXXXX , you and your husband acquired a vacant lot for approximately $XXXXXXXXXX in the XXXXXXXXXX , with the intention of building a personal residence on the site; however, due to regulatory, personal, and economic circumstances, the lot remained vacant until it was eventually sold for $XXXXXXXXXX in early XXXXXXXXXX . You want to know why the sale of your vacant lot is not subject to the GST, while the gain is subject to income tax.

The GST and the income tax are governed by two separate statutes: the Excise Tax Act and the Income Tax Act. Because of the different rules stipulated by these acts, a transaction may not give rise to the GST but may result in income tax. The sale of your vacant lot is exempt from the GST by virtue of subsection 9(2), Part I, Schedule V of the Excise Tax Act, because the lot was held for personal use.

Under subsection 3(b) of the Income Tax Act, taxable capital gains, which represent one-half of the capital gains, are included in the calculation of taxpayers' income. All taxable capital gains, including gains on assets that the taxpayer acquired for personal use, are subject to tax unless a specific provision applies to give a different result. For example, subsection 40(2) of the Act permits a Canadian taxpayer to reduce or eliminate the capital gain realized on the sale of his or her principal residence. Yet, the principal residence exemption does not apply to the gain on the sale of a vacant lot. Based on the information you provided, there is no other provision in the Act that would apply to exempt your gain.

I trust that the information I have provided is helpful.

Sincerely,

Jean-Pierre Blackburn, P.C., M.P.

Tim Fitzgerald, CGA

Tel. (613) 957-8967

2009-034188