4 February 1997 External T.I. 9639395 - PRINCIPAL RESIDENCE

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:

Whether land in excess of 1/2 hectare contributes to the use and enjoyment of a housing unit where the property cannot be subdivided due to a required road dedication.

Position:

Excess contributes to the use and enjoyment.

Reasons:

The situation described meets the requirements set out in paragraph 22 of IT-120R4.

XXXXXXXXXX			                           963939

Attention: XXXXXXXXXX Jacques E. Grisé
(613) 957-2059
February 4, 1997

Dear Sirs:

Re: Principal Residence

This is in reply to your letter of October 21, 1996 addressed to our Vancouver Tax Services Office requesting an interpretation on the definition of "principal residence" in section 54 of the Income Tax Act.

You describe a situation where a taxpayer acquired a housing unit and adjoining 4 acres of land in 1992 as a rental property. The taxpayer is contemplating a gift of the property to his child who will take up residence on the property. You indicate that the property cannot be subdivided due to a required road dedication.

The question of whether or not a legally imposed lot size exceeding 1/2 hectare is necessary for residential use always involves a finding of fact. If, at the time the property is acquired by the child, he or she can establish that the comments in paragraph 22 of Interpretation Bulletin IT-120R4 apply to the lot size, it will generally be considered to be the minimum amount of land necessary for the use and enjoyment of the housing unit as a residence throughout the period that the property is continuously owned by the child after that acquisition. Where all the other requirements for a principal residence exemption are met and the child designates the property as the child's principal residence, the property could be disposed by the child at a later date without attracting income tax.

Yours truly,

John F. Oulton
for Director
Business and Publications Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch