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.
PRINCIPAL ISSUES:
Whether there is a deemed disposition where real estate that is held by an individual is converted from inventory to a capital property which is a principal residence?
POSITION TAKEN:
No
REASONS FOR POSITION TAKEN:
There is no deemed disposition under the Act. The application of 45(1)(a) is limited to capital property (see memorandums E74486 and E1598). The position of the Department is that there is no disposition otherwise (see paragraphs 20 to 22 of IT-218R and memorandum from J.A. Stacey dated February 13, 1973).
LEGAL:
No
FINANCE OPINION:
No
JURISPRUDENCE:
No
RCT PUBLICATIONS:
IT-218R
HAA NUMBER:
HAA: 6883-3
XXXXXXXXXX
Attention: XXXXXXXXXX
Dear Sir:
RE: Change in Use of Real Property
This is in reply to your letter of December 2, 1993 wherein you requested a technical interpretation concerning the conversion of real property from inventory to principal residence.
In our view, there is no deemed disposition under the Income Tax Act (the "Act") where real estate that is held by an individual is converted from inventory to a capital property which is a personal-use property. The application of subsection 45(1) deemed disposition is limited to capital property for purposes of capital gain and losses that are determined in accordance with subdivision c of the Act.
Subsection 23(1) of the Act applies only in respect of property which is sold by a taxpayer.
Whether a taxpayer permanently converts real estate from inventory to capital property at a particular time is a determination of fact to be made based on all the circumstances, including the intention at the date of purchase and the manner in which it is disposed of.
Where a taxpayer permanently converts real estate from inventory to capital property which is a personal-use property, the ultimate sale of real estate will not give rise to a gain or loss on income account.
In order for a property to qualify as a taxpayer's principal residence for any particular taxation year, the requirements in paragraph 54(g) of the Act must be satisfied. Where a taxpayer acquires land in a taxation year and constructs a housing unit on it in a subsequent year, the property cannot be designated as a principal residence for the years that are prior to the year in which the taxpayer commences to ordinarily inhabit the housing unit. We refer you to paragraph 16 of Interpretation Bulletin IT-120R4 that discusses this situation.
The foregoing opinions are not rulings and, in accordance with the guidelines set out in Information Circular 70-6R2 dated September 28, 1990, are not binding on the Department.
We trust our comments will be of assistance to you.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate
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