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 to be sibdivided 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
950348
XXXXXXXXXX D. Zion
Attention: XXXXXXXXXX
April 5, 1995
Dear Sirs:
Re: Principal Residence Exemption
We are writing in reply to your correspondence of February 6, 1995, in which you request an advance tax ruling on behalf of your client, XXXXXXXXXX More specifically, you have asked if your client is exempt from capital gains taxation on the sale of certain property.
We do not confirm the tax implications resulting from proposed transactions except by way of an advance income tax ruling as described in the enclosed Information Circular 70-6R2 "Advance Income Tax Rulings" dated September 28, 1990 and Special Release thereto dated September 30, 1992. In addition to a charge for the service, such rulings 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 client's circumstances.
In his letter of December 7, 1994, which you forwarded to us along with your request, XXXXXXXXXX advised the Department that he and his spouse live in a residence located on property that is 43,985 square feet (.409 hectares) in area. He further states that it is their principal residence and the only real estate owned by the couple. He also mentions in this same letter that they are in the process of subdividing a portion of the property and requested confirmation of his interpretation of comments contained in Interpretation Bulletin IT-120R4, Principal Residence (IT-120R4), and their application to his situation.
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 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 trust our comments will be of assistance to you.
Yours truly,
P.D. Fuoco
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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