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 Sirs:
RE: Change in Use Election and Principal Residence Designation
We are replying to your letter of March 22, 1993 concerning the interaction of subsection 45(3) and paragraph 54(g) of the Income Tax Act (the Act). We apologize for the delay in our response.
You pose two questions. You point out that an election under subsection 45(3) of the Act cannot be rescinded once made since the election deals with a single occurrence in time: the disposition which would otherwise have been deemed to occur in the year the property was converted to a non-income producing purpose. You are unable to reconcile this fact with the wording found in subparagraph 54(g)(ii) of the Act which refers a taxpayer making an election for a particular year. You also ask for a technical analysis of how paragraph 54(g) of the Act operates to permit a taxpayer to designate a property as his principal residence for up to 4 years prior to his or her actual occupation of such as a principal residence.
Our understanding of the provision is that subparagraph 54(g)(ii) of the Act is only relevant to a taxpayer who is otherwise designating a particular property as his or her principal residence by reason of subparagraph 54(g)(i) of the Act. In such a context, the election to opt out of subsection 45(1) of the Act will effect more than the one taxation year in which the change of use occurs since the taxpayer also acquires the right to designate the property as a principal residence for additional years prior to the actual occupation of the property. In that sense the election under subsection 45(3) of the Act is for both the year of change in use and the four proceeding years (assuming that section 54.1 of the Act does not apply as well). This interpretation reflects the policy intent annunciated in the technical notes issued by the Minister of Finance dated September 9, 1985.
You will note that the policy intent of this provision has been clarified by the amendments to subparagraph 54(g)(ii) of the Act which was enacted by Bill C-92 which received Royal Assent on June 10, 1993.
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
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