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.
Revenue Canada Round Table
Canadian Tax Foundation Conference
November, 1995
Principal Residence and the Capital Gains Election
For capital gains purposes, a gain on the disposition of a housing unit may not be subject to tax if it qualifies as a taxpayer's "principal residence" as defined in section 54 of the Income Tax Act. Paragraph (e) of that definition provides that if the total area of land upon which a housing unit is situated exceeds 1/2 hectare, the excess land will not qualify as part of the principal residence unless the taxpayer can establish that it was necessary for the use and enjoyment of the housing unit as a residence. Interpretation Bulletin IT-120R4, Principal Residence, indicates that it is always a question of fact when establishing how much, if any, of the excess land is necessary for such use and enjoyment. Any of the land that does not qualify as part of a taxpayer's principal residence is subject to tax in the normal manner.
Recently, Revenue Canada was asked whether the filing of an election under subsection 110.6(19) ("capital gains election") by a taxpayer whose principal residence was situated on more than 1/2 hectare of land would prejudice a claim by the taxpayer that all of the land formed part of the principal residence. This is of consequence because a taxpayer may want to file such an election as a protective mechanism so that if the property was subsequently disposed of, and it was established that the land did not form part of the principal residence, at least a portion of the capital gain would be sheltered from tax.
As explained in IT-120R4, it is our position that all the facts must be examined when determining whether excess land in any particular situation satisfies the definition of principal residence. It is also our view that filing a protective capital gains election will not in and of itself prejudice a claim that the entire property qualifies as a principal residence. The presence or the absence of a capital gains election in respect of such a property is significant only in that it may be an indicator of the individual's own opinion as to the land's status.
We were also asked whether such a capital gains election could be cancelled, and an individual's 1994 income tax return reassessed to eliminate any adverse effects resulting from the election, in situations where it was subsequently established that the excess land did form part of the individual's principal residence. In this regard, subsection 110.6(25) provides that a capital gains election can usually be cancelled by notifying us in writing before 1998. However, after that time, we would not normally reassess an individual's 1994 return to delete the adverse tax consequences of such an election.
File: 5-952826
Date: January 5, 1996
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