28 March 2013 External T.I. 2012-0472221E5 - Principal Residence Designation

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 a non-resident taxpayer designate a condominium unit in Canada that the taxpayer owns as the taxpayer's principal residence?

Position: Question of fact but in this case probably not.

Reasons: The use of the principal residence exemption by a taxpayer is limited by reference to the number of taxation years ending after the acquisition date during which the taxpayer was resident in Canada.

XXXXXXXXXX
N. Pulandiran
2012-047222

March 28, 2013

Dear XXXXXXXXXX:

Re: Principal Residence

We are writing in response to your letter of November 21, 2012, wherein you requested our views on whether you can designate a condominium unit that you own as your principal residence during the period of time your children occupied it.

More specifically, you indicated that your condominium unit (the "Unit") is located in Canada and has been used solely for personal purposes (that is, it has never been rented or otherwise used for any income earning purpose) since you acquired it. You have also indicated that several of your children have, at different times, occupied the Unit while they were in full-time attendance at university. However, no other information was provided as to whether you or any other persons have occupied the Unit or whether you were a resident of Canada during any time you owned the Unit.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is provided by this Directorate where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, "Advance Income Tax Rulings", dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca/formspubs/menu-e.html. Where a particular transaction has already been completed, a review of the relevant facts and circumstances surrounding the situation would be required. Such review would normally be conducted by the applicable Tax Services Office during the course of an income tax audit which, if undertaken, would be carried out after the particular taxpayer has prepared and filed its income tax return for the year.

Notwithstanding the foregoing, we are prepared to provide the following general comments that may be of assistance.

The term "principal residence" is defined in section 54 of the Income Tax Act (the "Act"). In order for a property to qualify under the Act as a taxpayer's principal residence for a taxation year, it must be demonstrated, among other things, that the property is a "housing unit" that was owned by the taxpayer and that housing unit was "ordinarily inhabited" in the year by, inter alia, the taxpayer, the taxpayer's spouse or common-law partner, or by a child of the taxpayer. The CRA's general views on claiming the principal residence exemption are largely set out in Interpretation Bulletin IT-120R6, Principal Residence.

As noted in paragraphs 3 and 4 of IT-120R6, a housing unit can include a condominium and the ownership requirement includes joint ownership of a property and also refers to both legal ownership and beneficial ownership of the property (refer also to Interpretation Bulletin IT-437R, Ownership of property (principal residence)).

The question of whether a housing unit is "ordinarily inhabited" in the taxation year by a child of the taxpayer must be resolved on the basis of the facts in each particular case. The CRA's position on the meaning of the term "ordinarily inhabited" is outlined in paragraph 5 of IT-120R6. According to this paragraph, the fact that a person inhabits a housing unit only for a short period of time may be sufficient for the housing unit to be considered "ordinarily inhabited in the year" by that person.

For the purposes of the Act, a "child of a taxpayer" will include, (i) a person of whom the taxpayer is the legal parent, (ii) a person who is wholly dependent on the taxpayer for support and of whom the taxpayer has, or immediately before the person attained the age of 19 years had, in law or in fact, the custody and control, (iii) a child of the taxpayer's spouse or common-law partner; and (iv) a spouse or common-law partner of a child of the taxpayer.

As indicated in paragraph 41 of IT-120R6, it is possible for a property in Canada that is owned in a particular year by a non-resident of Canada to qualify as the non-resident taxpayer's principal residence for that year; for instance, where the property is "ordinarily inhabited" in the year by a child of the non-resident taxpayer.

However, notwithstanding the above, as also explained in paragraph 41 of IT-120R6, the use of the principal residence exemption by a taxpayer (as the result of variable "B" in the formula found under paragraph 40(2)(b) of the Act), is limited by reference to the number of taxation years ending after the acquisition date during which the taxpayer was actually resident in Canada. That is, the "resident in Canada" requirement under paragraph 40(2)(b) typically prevents a non-resident taxpayer from using the principal residence exemption to partially or entirely eliminate a gain on the disposition of the property.

We trust that these comments have been of assistance.

Yours truly,

Michael Cooke, C.P.A, C.A.
Manager
Business and Capital Transaction Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch