28 May 1991 Ruling 911281 F - Principal Residences

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.

Dear Sirs:

Re:  Principal Residences

This is in reply to your letter of May 1, 1991, addressed to G.W. Venner of the Assessing and Enquiries Directorate in which you request an interpretation or ruling concerning the change-in-use rules pertaining to principal residences.

A request for an advance income tax ruling must be made in accordance with the comments and procedures outlined in Information Circular 70-6R2, a copy of which is enclosed for you.  The current fee is $80 per hour and a $400 deposit is required.  However, we offer the following general comments which should be of assistance to you.

Your correspondence refers to the situation of employees serving abroad who have rented out their principal residences, most of whom have made elections under subsection 45(2) of the Income Tax Act. You have queried whether there is a requirement for an employee to re-occupy the residence prior to its sale in order to preserve its principal residence status, that is, to avoid triggering a possible taxable capital gain.

An election under subsection 45(2) of the Act allows a taxpayer to designate an income-producing property to be his or her principal residence for up to four years (in most cases) if, during the absence from the residence, no other housing unit has been designated as a principal residence, no capital cost allowance has been claimed on the property and the election has not been rescinded.  There is no requirement that the property be re-occupied prior to its sale.  If the four year principal residence designation expires prior to a sale, the property is deemed to have been disposed of and reacquired at fair market value at the relevant time, in which case any subsequent sale or deemed disposition of the property would be subject to the capital gain rules; however, the lifetime capital gain exemption may be available in the year of sale.

The four year limitation referred to above may be extended indefinitely if

a)     the absence is the result of a relocation by the taxpayer's employer or spouse's employer,

b)     neither the taxpayer nor the taxpayer's spouse is related to the employer,

c)     the taxpayer returns to the original house while still employed by the same employer or before the end of the year following the year in which such employment terminates,

and

d)     the original house is located at least 40 kilometres farther than the temporary residence is from the new place of employment.   We trust the above comments are of assistance to you.

Yours truly,

for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch