2 November 2010 Ministerial Correspondence 2010-0380991M4 - Tax implications of the sale of a duplex

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: What are the tax implications when a taxpayer disposes of a duplex at a loss?

Position: Question of fact. Depends, amongst other things, on whether the duplex - or one of its units - constitutes the principal residence of the taxpayer.

Reasons: A principal residence is a personal use property. The ITA does not recognize, for tax purposes, losses that arise from the disposition of PUP.

November 2, 2010

XXXXXXXXXX

Dear XXXXXXXXXX :

Thank you for your correspondence concerning your income tax affairs and those of your corporation, XXXXXXXXXX . I apologize for the delay in replying.

Canada Revenue Agency (CRA) officials at the XXXXXXXXXX Tax Services Office reviewed your individual income tax account and confirmed that there is currently no assessed amount owing. Please note that the CRA may review your income tax and benefit returns at a later date and that reassessments will be issued if they are warranted.

You mention in your correspondence that the CRA sent you a statement of account with incomplete information on September 23, 2010. I sincerely regret any inconvenience you experienced because the statement was incomplete. I am enclosing a revised statement of account to help you reconcile your figures with those of the CRA. The revised statement clearly shows the payments you made and a nil balance owing.

You requested an adjustment to your corporate account for XXXXXXXXXX , XXXXXXXXXX , and XXXXXXXXXX to update unaccounted personal expenses you incurred for those years. Under section 152 of the Income Tax Act, the CRA can reassess a corporation's return for a tax year if the CRA receives the request within the normal reassessment period. The normal reassessment period begins on the mailing date of the original notice of assessment, or of the notice that no tax was payable for a tax year, and ends three years from this date for a Canadian-controlled private corporation, and four years from this date for all other corporations. There is no provision in the Act that allows the CRA to adjust a corporate return outside the normal reassessment period.

CRA officials at the XXXXXXXXXX Tax Centre reviewed your request to adjust your individual returns to allow a business investment loss for XXXXXXXXXX of $XXXXXXXXXX and for XXXXXXXXXX of $XXXXXXXXXX . The Act prohibits the adjustments you requested in XXXXXXXXXX and XXXXXXXXXX to allow a business investment loss, because there is a 3-year limitation from the date of the original notice of assessment to request an adjustment to an assessment issued for a previous tax year. However, the taxpayer relief provisions allow the CRA to issue a refund beyond the usual 3-year period if the request relates to tax years ending in any of the 10 calendar years before the year the request is made. For example, a request made in 2010 must relate to the 2000 or subsequent tax years to be considered. Unfortunately, the CRA did not receive your request for an adjustment within the 10-year period.

You also requested a loss carryback from a loss that occurred when you disposed of your duplex in XXXXXXXXXX . XXXXXXXXXX centre officials will contact you to obtain the documents needed to determine the nature of the loss that arose in XXXXXXXXXX .

Concerning the disposition of your duplex, the Act generally renders non-taxable all or a portion of the gain a taxpayer received on the sale of a principal residence. A taxpayer can only designate one property as his or her principal residence for a given tax year. When a taxpayer owns a duplex and ordinarily resides in one of the units of the duplex in the course of a tax year, generally, he or she can designate that one unit as his or her principal residence for that year. To calculate the capital gains exemption relating to the unit, you can use Form T2091(IND), Designation of a Property as a Principal Residence by an Individual (Other than a Personal Trust), which is available on the CRA Web site at www.cra.gc.ca/E/pbg/tf/t2091_ind. There is no capital loss deductible when calculating income for income tax purposes on the disposition of a principal residence.

I trust that the information I have provided is helpful.

Yours sincerely,

Keith Ashfield

Enclosure