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:
Transfer of property from sole ownership of one spouse to sole ownership of other spouse. Will spouse to which property was transferred be eligible to claim the principal residence exemption for the property for the years 1972 to 1981?
Position TAKEN:
Question of fact., but given that spouse otherwise meets all the criteria in section 54 it is possible.
Reasons FOR POSITION TAKEN:
Where 73(1) applies, subsection 40(4) will be applicable. Pursuant to paragraph 40(4)(a) of the Act, the spouse will be deemed to have owned the property for the period of time that the other spouse owned it. Under subparagraph 40(4)(b)(ii) of the Act, the property will be deemed to have been the spouse's principal residence for any taxation year for which it was the other spouse's principal residence. If the other spouse chooses not to designate the property as his principal residence this subparagraph is not applicable. One must then determine if the spouse, in her own right, can designate the cottage as her principal residence for the period of time in question. Previous correspondence 920894 and others
February 9, 1995
Toronto West Tax Services HEAD OFFICE
6th Floor West Tower Rulings Directorate
Capital Gains Election Unit D. Zion
(613) 957-8953
Attention: David Wilson
950255
Principal Residence Exemption
We are writing in response to your correspondence of January 18, 1995 in which you present a situation concerning the transfer of property between spouses and ask whether the wife may claim the principal residence exemption for the taxation years 1972 to 1981 in respect of the property transferred from her spouse.
As we understand the situation, there are two properties, a cottage and a home, both of which were registered in the husband's name when purchased in XXXXXXXXXX You state that the cottage property has been recently transferred to the wife so that the cottage is now owned 100% by the wife while the husband has retained 100% ownership of the home. There was no transfer of funds from the wife to the husband upon the change in ownership. You have put forth the argument that the wife should be considered to own the cottage for the years in question as a result of her beneficial ownership therein so that the cottage meets the definition of a principal residence for the purposes of the principal residence exemption.
We have made the assumption from your comments that subsection 73(1) of the Income Tax Act (the "Act") applies to the transfer of the cottage property from the husband to the wife. Pursuant to subsection 73(1) of the Act the wife is deemed to have acquired the cottage at the adjusted cost base and the husband will not realize a capital gain as a result of the transfer.
Subsection 40(4) of the Act is not applicable until the time of disposition of the cottage by the wife. Upon the subsequent sale of the cottage, she will, pursuant to paragraph 40(4)(a) of the Act, be deemed to have owned the cottage for the length of time that her husband owned the cottage. Under subparagraph 40(4)(b)(ii) of the Act, the cottage will be deemed to have been the wife's principal residence for any taxation year for which it was the husband's principal residence. If the husband chooses not to designate the cottage as his principal residence this subparagraph is not applicable. One must then determine if the wife, in her own right, can designate the cottage as her principal residence for the period of time in question. You have advised us that she meets the "inhabited" criteria set out in previous subparagraph 54(g)(i) of the Act (now section 54). If she meets this criteria and is deemed by subparagraph 40(4)(a) to have owned the cottage throughout the time her husband owned it, then, subject to the other requirements of paragraph 54(g) of the Act having been met, she would be allowed to designate the cottage as her principal residence for the years 1972 to 1981. For years after 1981, only one principal residence may be designated per family.
We trust our comments have been assistance.
P.D. Fuoco
Section Chief
Personal and General Section
Business and General Division
Rulings Directorate
Policy and Legislation Branch
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