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:
Principal residence - land less than 1/2 hectare subdivided and sold.
Position TAKEN:
No proof normally required with respect to the "use and enjoyment" requirement of section 54 provided that the land does not exceed 1/2 hectare and no portion of that land was used to earn income from business or property
Reasons FOR POSITION TAKEN:
IT-120R4 paragraphs 20, 23 and 24 applicable
943149
XXXXXXXXXX D. Zion
February 23, 1995
Dear XXXXXXXXXX:
Re: Principal Residence Exemption and Capital Gains
We are writing in reply to your letter of November 25, 1994 in which you request our advice and ruling concerning the income tax implications from the severance and sale of part of the land on which your principal residence is situated. We apologize for the delay in responding.
As discussed in our telephone conversation of February 22, 1995 (Zion/XXXXXXXXXX), advance income tax rulings, in addition to a charge for the service, are given only in respect of proposed transactions. Further, a ruling cannot be provided where the main issue involves a question of fact. However, we will provide general comments as they pertain to your circumstances.
As we understand the situation, you and your wife have owned a property since prior to 1981. The original lot measured approximately 90 by 120 feet and extensive renovations were undertaken in 1981. At that time the lot was subdivided into two equal sized lots. A new residence was recently constructed on one of the lots and you are in the process of transferring ownership of the second lot upon which the original residence is located to your son and daughter for the assessed value.
Pursuant to section 54 of the Income Tax Act (the "Act") the principal residence of a taxpayer is deemed to include the land subjacent to the housing unit and such portion of any immediately contiguous land as can reasonably be regarded as contributing to the use and enjoyment of the housing unit as a residence, provided the land does not exceed 1/2 hectare. It is the Department's position, as outlined in paragraph 20 of the enclosed Interpretation Bulletin IT-120R4, Principal Residence (IT-120R4), that no proof is normally required with respect to the "use and enjoyment" requirement set out in the Act provided the land does not exceed 1/2 hectare and no portion of that land was used to earn income from business or property.
In the event the property is subdivided and a lot subsequently sold, it is our view that where the total parcel of land involved does not exceed 1/2 hectare, a taxpayer, who disposes of part of the land on which his or her principal residence is situated, is entitled to claim the principal residence exemption in respect of the portion(s) disposed of, again provided the original lot was acquired for use as a principal residence and never used for business or income-producing purposes. The comments in paragraphs 23 and 24 of IT-120R4 would be applicable. A principal residence designation would be required to be made for the entire property that qualifies as the principal residence. The remainder of the property, when subsequently disposed of, would be recognized as the individual's principal residence for the taxation years for which the original designation was made. We would also advise you that for taxation years subsequent to 1981, only one property per family unit can be designated as a principal residence for a given year.
We are also enclosing a copy of the 1994 Capital Gains Guide which includes a chapter on the subject of principal residences. Should you have any further questions regarding this matter, we suggest that you contact your local Revenue Canada Tax Services office. Upon provision of the facts of the situation they will be in a position to assist you.
As requested, we are returning the documents submitted with your enquiry.
We trust our comments will be of assistance to you.
Yours truly,
P.D. Fuoco
for Director
Business and General Division
Rulings Directorate
Policy and Legislation Branch
Enclosures
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© Her Majesty the Queen in Right of Canada, 1995
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© Sa Majesté la Reine du Chef du Canada, 1995
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