20 February 1995 Internal T.I. 9504376 - PRINCIPAL RESIDENCE EXEMPTION - SUBDIVISION OF LOT

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 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

			February 20, 1995

	Client Assistance Directorate	Rulings Directorate
	Hélène Beauchemin	D. Zion
	Director General	(613) 957-8953

	Attn:Paul Emberley
	         Ministerial Correspondence Section
			950437

Principal Residence Exemption
XXXXXXXXXX

We are writing in response to your memorandum of February 14, 1995 in which you request confirmation of your understanding of comments contained in Interpretation Bulletin IT-120R4, Principal Residence and their application to the circumstances presented by XXXXXXXXXX in her letter of January 9, 1995.

XXXXXXXXXX has advised the Department that she has resided on a property just under 1/2 hectare in size since 1974. The property was not on a sewage system which necessitated a property of this size. We assume from her comment that subdivision is now possible; that subdivision was not possible at the time of purchase and that this was the minimum lot size that could be purchased. XXXXXXXXXX has asked for the tax repercussions should she sell the property as is, or in subdivided portions thereof.

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. If this is the situation in XXXXXXXXXX case, should she sell the property as is, the entire property would qualify for the principal residence exemption provided all the other pertinent provisions of the definition are met.

In the event the property is subdivided and individual lots sold, it is our view that where the total parcel of land involved does not exceed one-half 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 XXXXXXXXXX principal residence for the taxation years for which the original designation was made.

We trust our comments will be of assistance in replying to this client.

B.W. Dath
Director
Business and General Division
Rulings Directorate
Policy and Legislation Branch