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 the 114 sq m. of land in excess of 1/2 hectare precludes a p/r exemption in respect of any of the land
Position: no
Reasons: when the land is in excess of 1/2 hectare & can’t be established to be necessary for the use and enjoyment of the housing unit as a p/r, the gain on the exempt portion must be calculated separately from the portion that is taxable
XXXXXXXXXX 980682
A. Humenuk
June 15, 1998
Dear Sir:
Re: Principal Residence
This is in reply to your letter of March 16, 1998, in which you ask whether a certain area of land can be considered to be part of your principal residence.
You asked for a ruling on whether your residence which is situated on 0.5114 hectares of land, qualifies as your principal residence. The procedures for requesting an advance income tax ruling are set out in Information Circular 70-6R2, Advance Income Tax Rulings. As it is a question of fact as to whether a particular property qualifies as a principal residence at a given time and for a particular period of time, we are unable to provide you with such a ruling. However, we offer the following general comments which may be of assistance to you.
A property which meets the definition of a principal residence as defined in section 54 of the Income Tax Act (the "Act") for a particular period of time, can be designated as an individual’s principal residence, for each year in that period. The basic requirements which must be met in order to designate a property as a principal residence, are set out in paragraphs 3 to 6 of Interpretation Bulletin IT-120R4, Principal Residence. In general terms, the land upon which a housing unit is situated and any adjoining land which can reasonably be regarded as contributing to the use and enjoyment of the housing unit as a residence will be included as part of the principal residence, provided that the amount of land does not exceed one-half hectare.
As explained in paragraph 20 of the bulletin, the portion of land, if any, which is used to earn income from a business or property will generally not form part of an individual’s principal residence for any period in which it was so used, even if the amount of land is less than one-half hectare. Furthermore, when the total area of land subjacent and contiguous to a housing unit exceeds one-half hectare, the Act provides that the excess land is deemed not to have contributed to the use and enjoyment of the housing unit as a principal residence, except to the extent that the individual establishes that it was necessary for such use and enjoyment. The onus is on the individual to establish that the excess land was necessary in that regard.
If the excess land cannot be shown to be necessary for the use and enjoyment of the housing unit as a principal residence, it will be necessary to calculate the gain on the excess portion of land separately from the gain on the housing unit and the remaining portion of the land since, as explained in paragraph 25 of the bulletin, it is only the portion of the gain applicable to the principal residence which is exempt. In the situation you describe, the amount of the excess land is 114 square metres. Even if it cannot be established that this excess land was necessary for the use and enjoyment of the housing unit as a principal residence, the proportion of the gain attributable to that portion of the land could possibly be minimal in relation to the whole gain.
When an individual changes the use of all or a part of a property which has been used for personal purposes to inventory, a deemed disposition of the converted land is triggered under subsection 45(1) of the Act. The determination of when a change of use occurs involves a question of fact. However, we would refer you to the general comments in paragraphs 12, 23 and 24 of Interpretation Bulletin IT-218R, Profit, Capital Gains and Losses from the Sale of Real Estate, Including Farmland and Inherited Land and Conversion of Real Estate from Capital Property to Inventory and Vice Versa (a copy of which is enclosed), which may assist you in that regard.
We trust that our comments will be of assistance, but caution you that they do not constitute an advance income tax ruling and, accordingly, are not binding on the Department with respect to any particular transaction.
Yours truly,
J.F. Oulton, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
Attachment
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