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.
Principal Issues: The taxpayer requests our opinion on whether a personal trust may designate two properties, for the purposes of the principal residence exemption, for the same taxation year.
Position: For a particular taxation year, a personal trust may designate one of its properties for the purposes of the principal residence designation.
Reasons: The mechanics of paragraphs 40(2)(b) and 54(c) of the Act only allow the personal trust, as the taxpayer, to designate one particular property as its principal residence.
XXXXXXXXXX 2010-035604
K. Podor
October 13, 2011
XXXXXXXXXX
Re: Personal Trust - Principal Residence Exemption
This is in response to your correspondence wherein you requested our opinion on whether a personal trust may designate two properties, for the purposes of the principal residence exemption, for the same taxation year.
Our Comments
In your particular scenario, the personal trust holds two properties each of which is inhabited by different individuals who are both beneficially interested in the trust.
Interpretation Bulletin-120R6, Principal Residence, sets out the guidelines for claiming a principal residence exemption on the disposition of a taxpayer's principal residence. As noted in paragraph 35, a personal trust can generally claim the principal residence exemption; however, where the 'taxpayer' referred to in the definition of "principal residence" in section 54 of the Income Tax Act ("the Act") is a personal trust, paragraph 54(a.1) of the principal residence definition requires that the housing unit be ordinarily inhabited by a "specified beneficiary" of the trust or by the spouse or former spouse or a child of a specified beneficiary. In order to qualify as a "specified beneficiary", a person must be an individual who is "beneficially interested" in the trust and the person must ordinarily inhabit the housing unit or have a spouse or former spouse or child who ordinarily inhabits it. The term "beneficially interested" is defined in subsection 248(25) of the Act as a person that has the right as a beneficiary under the trust to receive income or capital of the trust.
The mechanics of paragraphs 40(2)(b) and 54(c) of the Act only allow the personal trust, as the taxpayer, to designate one particular property as its principal residence. Where a personal trust designates a property as its principal residence for a particular taxation year, the property is deemed to be property designated, for the calendar year ending in the year, as the principal residence of each specified beneficiary of the trust. The specified beneficiary or a person who throughout the calendar ending in the year that was a member of such a beneficiary's family unit cannot designate another property as his/her principal residence for that year.
In the scenario you have described, if the personal trust designates House1 as the principal residence in a year, no other property may be designated as a principal residence by the personal trust for that year. If House1 qualifies as the personal trust's principal residence for one or more taxation years in which the personal trust owned the property, the principal residence exemption may be used to reduce or eliminate any capital gain which would otherwise be required to be included in the personal trust's income as a result of the disposition of the principal residence.
You may refer to form T1079, "Designation of a Property as a Principal Residence by a Personal Trust", for additional information. Form T1079 and other Canada Revenue Agency (CRA) publications can be found on the CRA website at www.cra-arc.gc.ca under Forms and Publications.
We trust these comments are helpful.
Lita Krantz, CA
Assistant Director
International and Trust Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2011
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2011
Email this Content