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: Will a son's parents be considered to be the owner of their son's house?
Position: It depends on the facts, but in this case no.
Reasons: The parents do not appear to have beneficial ownership of the house; they only have legal title to the house.
XXXXXXXXXX 2011-042780
N. Shea-Farrow
October 10, 2012
Dear XXXXXXXXXX:
Re: Technical Interpretation Request Ownership of Property - Principal Residence
We are writing in response to your letter of November 3, 2011 requesting our comments with respect to ownership of property for purposes of the Income Tax Act (the Act).
As we understand your situation, at the time you and your spouse were actively engaged in divorce procedures, you purchased a home for yourself. Your parents co-signed for the mortgage so you could purchase the home, as at that time you owned another home with your spouse that you were in the process of selling. Your parents have not lived in the home or contributed any money towards the home or paid for any expenses associated with the home such as utilities, mortgage payments, property taxes, repairs, etc. However, your parents hold legal title to the home since they co-signed for the mortgage to enable you to obtain financing. Your parents own their own home in another city and have lived in it for many years. You and your parents would like to leave their name on the title since you do not want to pay a transfer tax to remove their name from the title of the property. Essentially, you are concerned that if at some point you sell your house for a value that is greater than the purchase price your parents might have to report a capital gain.
Our comments
One of the requirements, according to the definition of principal residence in section 54 of the Income Tax Act (the Act) which determines whether a property is a taxpayers principal residence for a particular year, is that the property must be owned by the taxpayer at any time in the year. The Act does not define the term owned.
In the common law jurisdictions, two forms of property ownership are recognized legal and beneficial. Since in most cases the same person has both legal and beneficial ownership, determining ownership on the basis of beneficial ownership alone is not often required.
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.
One person's legal ownership of a property may, however, be subject to another person's beneficial ownership of that property. 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. A person who has beneficial ownership rights but not legal ownership can enforce those rights against the holder of the legal title.
Beneficial ownership must be distinguished, however, from the other types of physical possession of property which a person may enjoy. For example, a tenant of a property, or a person who is allowed to occupy it only because the true owner has no objection, is not the beneficial owner of the property. 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 you do not explicitly state that you made the down payment on the home and pay all the costs associated with the home and live in the home you have implied that to be the case since you and your parents have signed a document stating that they have no financial interest in the home and in your letter you stated that your parents live in another residence. If our understanding is correct and it is the intention of your parents and yourself that you are the beneficial owner of the home and that your parents only hold legal title to the home because they are acting as the guarantors of the mortgage, we are of the opinion that you as the beneficial owner and not your parents would have to report a capital gain, if any, on the property at the time you sell the home.
As requested we are also enclosing a copy of document number 2007-0253461E5.
We trust our comments will be of assistance to you.
Yours truly,
Sharmini Ratnasingham
Assistant Director
For Director
Financial Industries Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
Attachment
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