22 November 1989 Internal T.I. 58569 F - Capital Gains Exemption

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.

November 22, 1989

Dear Sirs:

Re:  Various Issues

This is in reply to your letter of August 24, 1989, wherein you requested the Department's opinion concerning various issues.  We advise that we will be responding to questions 1, 2 and 7 of your letter and that other divisions will be responding to those questions within their area in due course.

The medical notch provision permits a taxpayer to include in computing his medical expense tax credit for a taxation year the medical expenses paid on behalf of an individual who would be a dependent entitling the taxpayer to a personal tax credit if the dependent's income were nil provided the taxpayer adds to his own basic federal tax payable 68% of the would-be dependent's income in excess of $6 000.  Accordingly, there is no adjustment to the would-be dependent's taxable income or tax payable nor is their any interaction with the transfer to a taxpayer of a dependent's mental or physical impairment credit as, in this situation, the individual would not be eligible for a transfer according to the rules in subsection 118.3(2) of the Income Tax Act (the "Act").

Subsection 110.6(6) of the Act provides a grace period if a taxpayer knowingly or under circumstances amounting to gross negligence, has not filed a tax return in a year in which there was a disposition of a capital property.  You have asked if there is an administrative grace year following the original filing and, if so, whether there is a restricted time frame for this grace period.

We advise that with respect to voluntary disclosures of capital gains it is the Department's administrative practice to allow the individual to claim the capital gains deduction pursuant to section 110.6 of the Act.

You have asked if the Department has an administrative position that would permit a trust which acquires and holds title to a residence to utilize the principal residence exemption on disposition of the property.

In our view, only a living person can "ordinarily inhabit" a principal residence for the purposes of paragraph 54(g) of the Act and, therefore, the trust may not make a principal residence unless the trust may not make a principal residence designation unless the trust is a "spouse trust" (see paragraph 8 of IT-366R as amended by Special Release).  however, notwithstanding that legal title to the property is held by the trust, it is our view that the beneficiary may be considered to "own" his respective portion of the property as that term is used in the definition of "principal residence" contained in paragraph 54(g) of the Act. In this regard, we refer you to the comments in paragraph 7 and 8 of IT-120R2 and IT-437.  We also advise that there is no administrative practice to otherwise permit a trust to designate a principal residence.

We trust our comments are of assistance to you.

Yours truly,

for Director Business and General DivisionSpecialty Rulings Directorate Legislative and IntergovernmentalAffairs Branch