13 September 1991 External T.I. 912125 F - Conversion of Personal Use Property

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:  Conversion of Personal Use Property - Subsection 45(2)

This is in reply to your letter dated July 26, 1991 wherein you requested our opinion as to the availability of an election under subsection 45(2) of the Income Tax Act (the "Act") and whether a disposition has occurred based on the following facts.

Facts

1.     

2.     

24(1)

3.     

4.     

5.     24(1)

You have requested our opinion as to whether an election under subsection 45(2) of the Act will be available to the Taxpayer on the basis that a change in use has occurred in   24(1) and whether the Taxpayer will have to report a,

Our Comments

As the particular circumstances outlined in your letter involve a finding of fact and appear to involve an actual taxpayer and a completed transaction, we are reluctant to give you a definitive answer to your questions without having reviewed all the relevant facts, as discussed below, and any relevant documentation.  You may wish to submit all such details to the appropriate District Taxation Office for their comments.  We are prepared, however, to provide the following general comments which may be of some assistance.

On the basis that a change in use has in fact occurred from a personal-use property to an income-producing property, a taxpayer may elect under subsection 45(2) of the Act to be deemed not to have commenced to use the property for the purpose of producing income.  Where such an election is made there is no deemed disposition and reacquisition.

Based on the limited information provided, it appears there was a  24(1) However, this answer could change if the facts show that there was a disposition of the beneficial ownership of the land in 1974.  Therefore, a disposition will occur if beneficial ownership has been transferred to the purchaser even though legal ownership may have been retained by the vendor.

Whether a taxpayer has beneficial ownership of a property is a question of fact which can only be determined after establishing all the facts and reviewing all relevant documentation.  As discussed in Interpretation Bulletin IT-437, in determining whether a taxpayer has beneficial ownership, the Department will look at such factors as the right of 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 rights and obligations.  As stated ln paragraph 12 of this bulletin, a taxpayer who acquires ownership by way of a gift will have acquired such ownership on the date he obtained a right to possess the gift for his enjoyment.

Yours truly,

for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch