22 November 1988 Income Tax Severed Letter 5-6607 - [Partial Disposition of a 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.

XXXX

J.A. Szeszycki (613) 957-2130

NOV 22 1988

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Re: Partial Disposition of a Principal Residence

We are responding to your letter of September 19, 1988 in which you requested some clarification on the Department's stated position with respect to the partial disposition of a principal residence.

It is our understanding of the facts, as set out in your letter and clarified in your telephone conversation (Szeszycki XXXX of October 12, that:

1.

2.

3. XXXX

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5.

You have asked whether, in light of the Federal Court of Appeal decision in Yates vs MNR 86 DTC 6296 and the Revenue Canada News Release (as revised) dated April 13, 1987, the disposition of the property by each taxpayer into his newly created corporation would be considered to be a partial disposition of his principal residence.

The Department maintains the position, expressed in the News Release to which you referred, that where a minimum residential lot size is required under a zoning by-law in force at the time that a principal residence is acquired the property (up to the minimum lot size requirement) will be considered to be part of the principal residence even though it exceeds one-half hectare.

You have also asked whether there would be considered to be a change in use or conversion of capital property to inventory during the process of obtaining approval for the severance of lands. It is our understanding that the approval process is presently underway, that the proposed incorporation and subsequent development of the property are dependent on the approval being obtained. If that is indeed the case then, in our view, the application of rezoning and severance in itself does not constitute a change in use of the property or a conversion of capital property to inventory.

Finally, you requested our views as to whether the corporations established would be considered "associated" for the purposes of the Income Tax Act (the "Act") where neither of the shareholders of one corporation is a shareholder in the other corporations nor are they related in any way to a shareholder in the other corporations. Corporations are considered to be associated if they meet any of the criteria set out in section 256 of the Act as amended by Bill C-139. Based on the facts as set out in your letter it would appear that none of the corporations established would be considered associated, as that term is defined in the Act.

We hope that our comments will be of assistance to you. We would caution, however, that this does not constitute a ruling and is therefore not binding on the Department.

Yours truly,

for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch