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 an individual transferred ownership rights in respect of a residence for the purposes of the principal residence exemption when her two sons were included as legal owners.
Position:
No definitive opinion provided.
Reasons:
The issue involves a question of fact (i.e., beneficial ownership versus legal ownership).
970424
XXXXXXXXXX M. Eisner
November 24, 1997
Dear XXXXXXXXXX:
Re: Principal Residence Exemption
This is in reply to your letter of February 15, 1997, concerning the above noted subject. We apologize for the delay in replying.
You have outlined an actual situation which concerns the ownership of a residence and the principal residence exemption. The review of such a situation falls within the responsibility of your local tax services office. However, we are prepared to provide you with general comments, which should not be regarded as having application to a particular fact situation.
An elderly lady (Mrs. A) has lived in her own home for over 40 years. One of her two adult sons and his wife have lived with her in the home for a number of years. Up until about 5 years ago, the title to the home was registered in her name when the title to the home was changed by Mrs. A to include her two sons (legally, each of Mrs. A and her two sons then had a 1/3 interest in the home). Since then, the house has gone up in value by approximately $100,000. Her two sons did not pay her anything with respect to the change in title.
Mrs. A has decided to live in a nursing home. The son and his wife, who have lived in the home for many years, will become the full owner of the home, will continue to remain in the home, and will pay 50% of its fair market value to the other son.
In the above type of situation, it is your view that Mrs. A should not be considered to have transferred ownership interests in the home to the two sons when they were included in the legal title, as that action permitted them to help Mrs. A to manage her affairs such as property taxes and insurance. Accordingly, Mrs. A should be considered to be the sole current owner of the home and will be considered to have disposed of it when she goes to the nursing home and the proposed arrangements are finalized between her two sons.
Paragraph 1 of Interpretation Bulletin IT-437R, "Ownership of Property (Principal Residence)", indicates that for the purposes of claiming the principal residence exemption, the ownership requirement is met where the taxpayer is the legal owner or beneficial owner of the property. In addition, paragraph 3 of that bulletin indicates that someone's legal ownership of a property may be subject to someone else's beneficial ownership of that property. Accordingly, if Mrs. A retained beneficial ownership after the registered title was shared with her two sons, Mrs. A will be entitled to claim the principal residence exemption when beneficial ownership of the house is transferred to her two sons provided the requirements of the Income Tax Act (the Act) relating to the disposition of a principal residence, are otherwise met. On the other hand, if Mrs. A did not retain beneficial ownership of the property after legal title changed, she would be considered to have had a "disposition" (as defined by section 54 of the Act) for income tax purposes, when legal title changed (to the extent of 2/3 of its fair market value at that time).
Unfortunately, it is not possible to provide you with more definitive comments on the basis of the information provided. However, we trust our comments will be of assistance to you but caution that they do not constitute an advance income tax ruling and, accordingly, are not binding on the Department.
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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