25 October 2011 External T.I. 2011-0408461E5 - Principal Residence after marriage breakdown

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. Where two spouses are living separate and apart but are not legally separated, can each spouse designate the residence that they own and reside in as their respective principal residence? 2. Same as 1 except both spouses' names are listed on title to each residence in order to qualify for financing?

Position: 1 & 2. No, only one residence may be designated as principal residence.

Reasons: Under paragraph 54(c) of the definition of "principal residence", for a taxation year after 1981, only one particular property can be designated as a principal residence for both spouses, other than where the spouses were throughout the year living apart, and were separated under a judicial separation or written separation agreement.

XXXXXXXXXX
								2011-040846
								M. Allan
October 25, 2011

Dear XXXXXXXXXX :

Re: Principal Residence after marriage breakdown

We are writing in response to your letter of May 17, 2011, regarding the designation of individual residences as principal residences under the Income Tax Act (Act) in the case of a married couple who have been living separate and apart following a marriage breakdown, but who are not legally separated.

You have described two scenarios:

(1) The family residence is sold and each spouse purchases a residence in which they reside. The title to each residence purchased is in one name only, being the name of the spouse who resides in it. Can each spouse designate the residence in which they reside to be their principal residence for income tax purposes?

(2) Same as (1) above, except both spouses' names are listed on the title to each residence in order to qualify for bridge mortgaging and to aid in the financing of each property. Can each spouse designate the residence in which they reside to be their principal residence for income tax purposes?

Our Comments

Under the definition of "principal residence" in section 54 of the Act, a taxpayer can designate only one property as his or her principal residence for a particular taxation year. The property must be owned by the taxpayer, either alone or jointly with another taxpayer. The taxpayer, the taxpayer's spouse or common-law partner, or the taxpayer's child must ordinarily inhabit the property in the year. For a taxation year that is after 1981, only one property can be designated as a principal residence by a taxpayer and his or her spouse or common-law partner, other than where the taxpayer and his or her spouse or common-law partner were throughout the year living apart from each other under a judicial separation or written separation agreement. You may refer to Interpretation Bulletin IT-120R6, Principal Residence, for further information regarding the qualifications for a principal residence designation.

In a case where two spouses are living separate and apart in their own residences, but not under a judicial separation or a written separation agreement, only one of the residences can be designated as a principal residence for a particular taxation year. The determination as to which residence may be designated as a principal residence for any particular taxation year and by which spouse, would depend, amongst other things, on an actual disposition and designation of a particular residence and the existence of a mutually acceptable agreement between the spouses. This result would be the same whether the title to each residence is in the name of one spouse or both.

After the spouses obtain a judicial separation or written separation agreement, each spouse will be able to designate different residences as their respective principal residence commencing the first taxation year in which the judicial separation or written agreement was in place throughout the year, with no retroactive application to prior taxation years.

We trust these comments will be of assistance.

Nerill Thomas-Wilkinson
A/Manager
for Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch