17 May 1994 External T.I. 9408995 - PRINCIPAL RESIDENCE EXEMPTION

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

General - principal residence - land in excess of 1/2 hectare.

Position TAKEN:

Question of facts.

Reasons FOR POSITION TAKEN:

IT-120R4 paragraphs 21 and 22

		                                                5-940899
XXXXXXXXXX			                                              L. Roy

Attention: XXXXXXXXXX

May 17, 1994

Dear Sir\Madam:

Subject: Principal residence exemption

This is in reply to your letter of March 24, 1994 wherein you requested our comments regarding the principal residence exemption where the land upon which the residence is situated is in excess of one-half hectare (approximately one acre).

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R2, dated September 28, 1990. Where the particular transactions are completed, the enquiry should be addressed to the relevant district taxation office. The following comments are, therefore, of a general nature only, and are not binding on the Department.

For purposes of the principal residence exemption, the land on which your home is located qualifies as part of your principal residence if it is not in excess of one-half hectare. Where the total area of the land exceeds one-half hectare, the excess land will not qualify as part of the principal residence. However, in some cases, land in excess of one-half hectare may qualify if established to be necessary for the use and enjoyment of the housing unit as a residence.

Nevertheless, it is a question of fact whether land in excess of one-half hectare is necessary for the use and enjoyment of a principal residence. It is incumbent upon a taxpayer wishing to claim land in excess of one-half hectare as part of his or her principal residence to establish, by means of the particular facts relating to that property, that the excess land is necessary for the use and enjoyment of that residence.

To determine whether or not land in excess of one-half hectare qualifies as principal residence, we refer you to paragraphs 21 and 22 of Interpretation Bulletin IT-120R4 which we enclose with this letter.

Where land does not qualify as principal residence, it will be subject to the capital gains provisions at the time of disposition. In that respect, the Capital Gains Exemption of $100 000 was eliminated as a result of the February 22, 1994 Budget. However, individuals will have the opportunity, when filling their 1994 income tax returns, to make an election for property owned on February 22, 1994, to recognize pre-Budget Day accrued capital gain up to the remainder of their $100,000 exemption. The election will treat the properties selected by the individual to have been disposed of February 22, 1994 and immediately reacquired. The adjusted cost base of the property elected will be increased by the amount of the gain recognized. This election will also apply to real estate such as excess land on which a residence is situated. With respect to the election on real estate, only the pre-March 1992 gains can be recognize which is based on the proration rules established in the February 1992 Budget.

We trust the above comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate