14 July 2023 External T.I. 2022-0948061E5 - Beneficial ownership and principal residence

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 a taxpayer was the beneficial owner of a property held jointly with the taxpayer's children.

Position: Question of fact, but the taxpayer is likely the beneficial owner of the property.

Reasons: The attributes of "beneficial ownership" are evidenced by the conduct of the parties and supporting documents.

XXXXXXXXXX									2022-097806	
										Denise Basso

July 14, 2023

Dear XXXXXXXXXX:

Re: Beneficial ownership of a principal residence

This is in response to your request of June 3, 2022, which we received on September 1, 2022, and our subsequent telephone conversation (Basso/XXXXXXXXXX), wherein you requested our views on whether a taxpayer was the beneficial owner of her house (the “Property”) after she added two of her daughters to the legal title.

In your letter, you state that the taxpayer, Mrs. M, lived at her Property in XXXXXXXXXX from XXXXXXXXXX until she passed away in XXXXXXXXXX. In XXXXXXXXXX, Mrs. M added two of her daughters to the Property’s title for nominal consideration. At that time, Mrs. M’s daughters signed an acknowledgement indicating that it was Mrs. M’s intent that the Property be willed to all her living children equally, and that it was not Mrs. M’s intention to gift the Property to her daughters to the exclusion of her other four children. Mrs. M always paid all costs related to the Property and neither of her daughters lived in the Property with her.

You have asked whether Mrs. M was the beneficial owner of the Property from XXXXXXXXXX through to her death in XXXXXXXXXX.

Our Comments

This technical interpretation provides general comments about the provisions of the Income Tax Act (the “Act”) and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of a particular transaction proposed by a specific taxpayer 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 70-6R12, Advance Income Tax Rulings and Technical Interpretations.

Under the Act, a capital gain accrued on a capital property is triggered when there is a disposition of that property. If a property qualifies as a taxpayer’s principal residence, an exemption can be claimed under paragraph 40(2)(b) to reduce or eliminate any capital gain otherwise realized on the disposition of the property. One of the requirements for a property to qualify as a taxpayer's principal residence for a taxation year is that it must be owned by the taxpayer, whether jointly with another person or otherwise.

In common law jurisdictions, two forms of property ownership are recognized - legal and beneficial. Normally, legal ownership exists when title is 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. However, in common law jurisdictions, one person’s legal ownership of a property may 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.

In determining whether a person has beneficial ownership in a property, 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.

The concept of “beneficial ownership” is important for the purpose of the definition of “disposition” in subsection 248(1) of the Act. This definition states, inter alia, that a disposition “does not include any transfer of the property as a consequence of which there is no change in the beneficial ownership of the property, …” Therefore, the Act does not generally consider a taxpayer to have disposed of property unless there is a change in beneficial ownership. As such, a taxpayer's mere transfer of legal title to a person without a transfer of beneficial ownership of the property is generally not a disposition for tax purposes.

The determination of whether a person beneficially owns a property is a mixed question of law and fact that can only be determined after a review of all the facts and circumstances applicable to a particular situation. However, based on the information provided, it would appear that Mrs. M was likely the beneficial owner of the Property until her death in XXXXXXXXXX.

For more information on the concepts of legal and beneficial ownership, and on the principal residence exemption, please refer to Income Tax Folio S1-F3-C2: “Principal Residence,” which can be viewed on the Canada Revenue Agency’s web site.

We trust our comments will be of assistance.

Yours truly,

Pamela Burnley, CPA, CA
Manager
Business Income and Capital Transaction Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch