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: 1. If two individuals each inhabiting two separate residences decide to marry, must they sell one of the residences prior to the marriage to obtain the principal residence exemption on both properties? 2. Is there a reasonable time limit following the marriage, to allow for the sale of the one residence and still receive the principal residence exemption?
Position: 1. Question of fact but generally no. 2. Generally, the individual has until the end of the taxation year subsequent to the year of marriage to dispose of property and still receive full exemption status.
Reasons: 1 & 2. The mechanics of the formula contained in 40(2)(b), specifically the "one-plus" portion, allows for one full taxation year not to be designated as the principal residence and still receive the full exemption.
XXXXXXXXXX 2010-038017
W. Doiron
April 14, 2011
Dear XXXXXXXXXX :
Re: Principal Residence Exemption
This letter is being sent to your attention in order to inform you of minor revisions to our original letter dated March 10, 2011. Please note that these revisions do not change the overall position identified in the March 10, 2011 letter but are merely intended to clarify certain of our previous comments. The revisions are identified by bold text in the fourth paragraph below.
This letter is in response to your email in which you ask the following questions:
- If two individuals each inhabiting a separate residence decide to marry, must they sell one of the residences prior to the marriage to obtain the principal residence exemption on both properties?
- Is there a reasonable time limit following the marriage, to allow for the sale of the one residence and still receive the principal residence exemption?
For the taxation years before the year of marriage and including the year of marriage, both individuals (Individual A and Individual B) would be able to claim their respective residences (Residence A and Residence B) as their principal residence. However, in the taxation years subsequent to the year of marriage, the two individuals would be spouses throughout the year and therefore, only one property may be designated as their principal residence for a particular year.
Where two taxpayers each inhabiting a separate residence marry, they generally have until the end of the first calendar year subsequent to the year of marriage to sell one of the residences and still receive a full principal residence exemption on both properties.
If the second residence is held beyond that time, only a portion of a future capital gain on one of the residences will be taxable. The exempt portion of the capital gain would be calculated using a formula where the numerator of the fraction is one plus the number of years it was a principal residence, and the denominator is the number of years it was owned.
Further details about the principal residence deduction are available in Information Bulletin IT120-R6, a copy of which is attached to this letter. It is available electronically at http://www.cra-arc.gc.ca/E/pub/tp/it120r6/it120r6-e.html.
We trust these comments will be of some assistance.
Yours truly,
Steve Fron
Acting Manager
International & Trusts 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