27 February 1997 External T.I. 9641685 - PRIN RES -TRANS OF EXCESS LAND BETWEEN NEIGHBOURS

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 designation -the effect of acquiring more land than in necessary for the use and enjoyment of the residence on the availability of the p/r designation in respect of the 10 hectares presently held (& presumed necessary for use and enjoyment) - the situation described involves an application for subdivision by a group of neighbours where 1 neighbour must transfer the excess land to another, in trust or otherwise, in order to sell the p/r. The neighbour receiving the property is concerned that holding the neighbour excess land pending approval of the subdivision, might affect the status of the 10 hectares presently held as a p/r

Position:

if additional land is acquired that is not necessary for use & enjoyment, the excess land won't qualify as a p/r but the holding of the excess land will not affect the determination of whether the original 10 hectares was necessary for the use and enjoyment of the housing unit -in the alternative, if the land is held in trust, then the trustee will not have increased his personal holdings so the issue would be moot

Reasons:

the holding of additional land does not make the original 10 hectares unnecessary for use and enjoyment -see para 25 of it-120r4 for requirement to calculate gain on p/r separately from the excess land with respect to land in trust, 104(2) states that the trustee's liability for his\her own tax is not affected by the tax payable by the trust

A. Humenuk
XXXXXXXXXX		964168

Attention: XXXXXXXXXX

February 27, 1997

Dear Sirs:

Re: Advance Income Tax Ruling Request
XXXXXXXXXX

This is further to your clients' letter of December 15, 1996 in which they asked for a ruling on the availability of the principal residence exemption in respect of land owned by XXXXXXXXXX and your subsequent letter of February 4, 1997, in which the request was withdrawn and you asked for an opinion instead.

The issue is whether the holding of land (as described below) by XXXXXXXXXX will affect the status of the adjoining land presently held by him as part of his principal residence. As we understand the facts, the individuals in question each own adjacent properties which are 10 hectares each, being the minimum lot size for the area. A request for subdivision submitted by a group of neighbours in the area, including the taxpayers, is currently under consideration by the municipality. In the meantime, XXXXXXXXXX has received an offer to purchase his residence, exclusive of the land that is to form part of the proposed plan of subdivision. A partial severance of XXXXXXXXXX land will be permitted by the municipality provided that the excess land is added to an adjacent parcel of land belonging to one of his neighbours. The reason for this is that the excess parcel land would not otherwise have any access to public roads.

It is proposed that the excess land be transferred to XXXXXXXXXX, a neighbour with an adjacent parcel of land, to be held in trust for XXXXXXXXXX, pending the approval of the plan of subdivision. The question is whether XXXXXXXXXX claim for a principal residence exemption in respect of the 10 hectares he currently owns would in any way be affected by his holding the excess land of XXXXXXXXXX, either directly or as a trustee.

For the purpose of the definition of "principal residence" in section 54 of the Income Tax Act, an individual's principal residence does not include any land in excess of a 1/2 hectare unless such land is necessary for the use and enjoyment of the housing unit as a residence. If an individual establishes that only part of the land is necessary for the use and enjoyment of the dwelling unit as a residence, then only that portion of the land will qualify as part of the principal residence. Paragraph 25 of Interpretation Bulletin IT-120R4, Principal Residence, explains why it is necessary to calculate the gain on the portion of the land that qualifies as a principal residence separately from the gain on the portion that results in a capital gain.

Consequently, it is our opinion that the acquisition of the additional land, either under a trust arrangement or otherwise, will not, of itself, affect the status of the 10 hectares he presently owns.

Any gain realized on the disposition of the additional land acquired as a result of the partial severance, however, will not form part of his principal residence. If the additional land is held in a trust, any gain or loss on the subsequent disposition of such land is included in the income of the trust without affecting the liability of the trustee for his or her own income tax by reason of subsection 104(2) of the Act.

While we trust that our comments will be of assistance to you, we caution you that they do not constitute an advance income tax ruling and are, accordingly, not binding upon the Department with respect to any particular transaction. Your deposit will be returned under separate cover.

Yours truly,

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