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 a particular property in excess of 1/2 hectare qualifies for the principal residence exemption.
Position TAKEN:
General comments provided.
Reasons FOR POSITION TAKEN:
It is a question of fact as to how much, if any, excess land is necessary for the use and enjoyment of a housing unit as a residence, and the onus is on the taxpayer to establish that the excess land was necessary in this regard. We were not provided with sufficient information to make this determination.
June 18, 1998
Toronto East Tax Services HEADQUARTERS
471-1-4 M. Azzi
957-8972
Attention: C. Husbands
7-980775
Principal Residence Exemption
This is in reply to your memo of March 16, 1998, wherein you requested our views on whether land in excess of 1/2 hectare, located at XXXXXXXXXX, qualifies for the principal residence exemption.
We understand that XXXXXXXXXX owned the property with her spouse, XXXXXXXXXX, and that she lived on the property (with her spouse) for over forty-five years, until her death on XXXXXXXXXX. The property, which includes approximately XXXXXXXXXX of land, will be transferred from her estate to XXXXXXXXXX. The taxpayer’s representative indicates that according to its bylaw XXXXXXXXXX will not allow the erection of a building or structure, or the severance of a potential building lot, where there is not frontage to an improved public street (we note, however, that the map provided indicates that a property adjacent to taxpayer’s property was severed, although it does not appear to have frontage to a public street). According to the taxpayer’s representative, the only access to the property is via an “unopened road” and a private gravel lane.
Where the total area of land upon which a housing unit is situated exceeds 1/2 hectare, the excess land is deemed, pursuant to the definition of “principal residence” in section 54 of the Income Tax Act (the “Act”), not to have contributed to the use and enjoyment of the housing unit as a residence, and thus will not qualify as part of the principal residence, except to the extent that the taxpayer establishes that it was necessary for such use and enjoyment. It is a question of fact as to how much, if any, of the excess land is necessary for the use and enjoyment of a housing unit as a residence, and the onus is on the taxpayer to establish that the excess land was necessary in this regard. While we are not in a position to establish whether the excess land qualifies as a principal residence in the above-described situation, we can provide you with the following comments which may assist you in making this determination.
As indicated in paragraph 21 of Interpretation Bulletin IT-120R4, Principal Residence, land in excess of 1/2 hectare may be necessary, where the size or character of the housing unit together with its location on the lot make such excess land essential to its use and enjoyment as a residence, or where the location of a housing unit requires such excess land in order to provide the taxpayer with access to and from public roads. We were not provided with sufficient information on the above property and its surrounding area to establish whether access to and from public roads is limited. We would also note, that it is our general view that the fact that an individual makes use of more than 1/2 hectare of land in connection with a particular lifestyle does not, in itself, mean that it is necessary for the use and enjoyment of the housing unit as a residence. Other factors that also have to be considered, and that were not provided, are whether there were any provincial or municipal laws in effect, at the time the property was acquired, which imposed minimum lot size restrictions in excess of 1/2 hectare, severance restrictions, or both, and whether application could nonetheless have been made to subdivide the property into smaller parcels. Also, it would be helpful to know the origin of the private residences surrounding the property, and whether those lots were at one time owned by XXXXXXXXXX. Finally, another consideration is how the excess land was used during the period of ownership. For instance, if it was used for income-producing purposes, it will usually not be considered necessary for the use and enjoyment of the housing unit as a residence.
We would also note that it appears that no consideration was given, in the above circumstances, to the application of the rollover provisions of subsection 70(6) of the Act, upon the death of a spouse, and we have not been provided with sufficient information to establish whether these provisions apply. For further information on the application of these provisions, reference may be made to IT-305R4, Testamentary Spouse Trusts.
For your information, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Department’s mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version or they may request a copy severed using the Privacy Act criteria which does not remove client identity. Requests for this latter version should be made by you to Jackie Page at 613 957-0682. The severed copy will be sent to you for delivery to the client.
We trust that these comments will be of assistance.
Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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