29 July 1993 External T.I. 9308275 F - Beneficial Ownership & P/R Designation

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.

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Attention:  XXXXXXXXXX

Dear XXXXXXXXXX

RE:  Principal Residence Designation

We are replying to your letter of March 19, 1993 in which you ask for a ruling on whether or not an individual will be able to designate a particular property as her principal residence.

As noted in paragraph 14 of the attached Information Circular IC 70-6R2 and special release thereto, an advance income tax ruling (for which a fee is charged) will not be provided where the primary issue to be determined is one of fact and the circumstances are such that all the pertinent facts cannot be established at the time of the request for the advance ruling. Since the determination of whether a particular property is eligible to be designated as a principal residence involves a finding of fact we will not rule on this issue. We are, however, prepared to offer general comments on the income tax implications of your enquiry.

The property in question was registered in the name of the taxpayer's son but the downpayment and mortgage payments were shared by the taxpayer and her son in the manner agreed between them (the son made the mortgage payments from 1965 to 1971 and the mother made the payments from 1971 to 1980). Other expenses and upkeep were shared on an ad hoc basis until 1985 when the mother assumed full responsibility for all the expenses of the property. You have asked us to confirm that the mother will be considered to own the property notwithstanding that the legal title is registered in the son's name alone and that, in the event of the disposition of the property, the mother will be able to designate the property as her principal residence and thus eliminate any income tax that might otherwise be payable in respect of that disposition.

It is a question of fact as to who owns a particular property which can only be determined upon a review of all facts and documentation related to the property. As stated in paragraph 2 of the enclosed Interpretation Bulletin IT-437 "Ownership of Dwelling Property", ownership for income tax purposes should be given the meaning of "beneficial ownership" as explained therein. While legal ownership and beneficial ownership are usually combined in one person, the bulletin gives many examples where they are not (paragraph 11 in particular may be relevant to the case at hand).

In particular, the intent of the parties as expressed in their actions and handling of the property is vital for determining ownership in a non-arm's length situation. Thus we are unable to provide any definitive statement as to ownership. Based solely on the information in your letter, it would appear that the mother and son purchased the property jointly with the intent to share in the property in some manner.

With respect to your request for confirmation of the mother's ability to designate the property as a principal residence for a particular period of time, please be advised that we cannot provide such confirmation since such a designation can only be made at the time of disposition when all the relevant factors necessary to make a designation are known.

We have also included a copy of Interpretation Bulletin IT-120R4 "Principal Residence" dated March 26, 1993. Please note that the amendments described in italics on page 4 have been passed and in certain circumstances, a trust can also designate a property as a principal residence. If you wish further information, please contact your local district taxation office.

We trust our comments will be of assistance to you.

Yours truly,

P.D. Fuoco for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch