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: 1. Whether the Taxpayer's adult son is a "child" for the purposes of paragraph (a) in the definition of "principal residence" in section 54 of the Act.
Position: 1. Yes.
Reasons: 1. The use of the word "child" in the definition of "principal residence" in section 54 is unrestricted and can include a taxpayer's adult child.
XXXXXXXXXX
2014-054190
T. Posadovsky
August 29, 2014
Dear XXXXXXXXXX,
Re: Meaning of "Child" in the Definition of "Principal Residence"
We are writing in response to your emails, the latest of which was dated July 31, 2014, requesting our views on the meaning of "child" for the purposes of the definition of "principal residence" in section 54 of the Income Tax Act (the "Act").
In particular, you want to know whether a housing unit owned by a particular individual could still qualify for the principal residence exemption where it is ordinarily inhabited by the individual's adult child and not the particular individual.
Our Comments
This technical interpretation provides general comments about the provisions of the Act and related legislation. It does not confirm the income tax treatment of a particular situation but is intended to assist you in making that determination. The income tax treatment of transactions will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings.
If a property qualifies as a taxpayer's principal residence, an exemption can be claimed under paragraph 40(2)(b) of the Act to reduce or eliminate any capital gain otherwise realized on the disposition of the property. The definition of "principal residence", in section 54 of the Act, sets out the rules under which a property can be designated as an individual's principal residence for a particular taxation year.
Generally, in order for a property to qualify for a designation as a taxpayer's principal residence for a taxation year, it must be demonstrated, among other things, that he or she owns the property, and that it is ordinarily inhabited in the year by the taxpayer or the spouse or common-law partner, former spouse or common-law partner or child, of the taxpayer. A taxpayer can designate only one property as a principal residence for a particular taxation year and, for taxation years after 1981, only one property per family unit can be designated as a principal residence.
The question of whether a housing unit is ordinarily inhabited in the tax year by the taxpayer or the spouse or common-law partner, former spouse or common-law partner or child, of the taxpayer must be resolved on the basis of the facts in each particular case. However, it is our view that a "child" of the taxpayer for the purposes of "principal residence" definition in section 54 would include an adult child.
For more information on the principal residence exemption, please refer to Income Tax Folio S1-F3-C2, Principal Residence, available on our website at www.cra-arc.gc.ca.
We trust that our comments will be of assistance.
Yours truly,
Michael Cooke, CPA, CA
Manager
Business Income and Capital Transaction Section
Business and Employment Division
Income Tax Rulings Directorate
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