11 August 2010 External T.I. 2010-0368681E5 - Ownership of a Principal Residence

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: Is there a change in beneficial ownership when a taxpayer that holds legal title transfers a property that is a housing unit to her daughter and the daughter's spouse?

Position: General answer.

Reasons: Question of fact. The transaction is already completed.

XXXXXXXXXX
								2010-036868
								Sam Kim
								(613) 952-1506
August 11, 2010

Dear Madam:

Re: Determining the Ownership of a Principal Residence

We are replying to your correspondence of May 25, 2010, concerning the ownership of property under the Income Tax Act (the "Act").

As we understand it, you have the following situation:

1. In XXXXXXXXXX , you purchased in your own name a unit in a duplex (the "Residence") that is located in XXXXXXXXXX as a principal residence for your daughter and her husband, who did not qualify for a mortgage, with the intention that they would be the beneficial owners.

2. Your daughter and her husband have resided in the Residence ever since the purchase date and have paid all the Residence-related utility and maintenance costs. You have never lived in the Residence as you have your own family home.

3. On XXXXXXXXXX , you decided to transfer the legal title of the Residence to your daughter and her husband. Over the time period of XXXXXXXXXX , the Property's market value has appreciated by $XXXXXXXXXX .

You are concerned that your transfer of the legal title to your daughter and her husband may constitute a disposition for tax purposes, triggering a capital gain in your hands. In this regard, you ask that we provide an opinion stating that your daughter and her husband are, and have been since XXXXXXXXXX , the beneficial owners of the Residence and as such that your transfer of title to them was not a disposition for tax purposes.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed (as is the case in your situation), the inquiry should be addressed to the relevant Tax Services Office (the "TSO"). We are, however, prepared to offer the following general comments, which may be of assistance.

Under the Act, a capital gain accrued on a property is triggered when there is a disposition of the property. Generally, a disposition does not occur for tax purposes if there is a transfer of title that is not accompanied by the transfer of beneficial ownership. In other words, generally under the Act a disposition only occurs if there is a transfer of beneficial ownership. Therefore, a taxpayer's mere transfer of title to a person who has beneficial ownership of the property is not generally a disposition for tax purposes that would trigger a capital gain in the taxpayer's hands.

Interpretation Bulletin IT-437R - Ownership of Property (Principal Residence), provides guidelines for determining whether there is a beneficial ownership by an individual who does not have concurrent legal title of property that is a principal residence.

As discussed in paragraph 1 of IT-437R, in common law jurisdictions, two forms of property ownership are recognized - legal and beneficial. Normally, "legal ownership" exists when title is transferred to, recorded in, registered in or otherwise carried in the name of a person. The term "beneficial ownership" is used to describe the type of ownership of a person who is entitled to the use and benefit of the property whether or not that person has concurrent legal ownership. That is, one person's legal ownership of a property may be subject to another person's beneficial ownership of that property. A person who has beneficial ownership rights but not legal ownership can enforce those rights against the holder of the legal title.

The primary attributes of beneficial ownership include possession, use and risk. Therefore, in determining whether a person has beneficial ownership, one should consider such factors as the right to possession, the right to collect rents, the right to call for the mortgaging of the property, the right to transfer title by sale or by will, the obligation to repair, the obligation to pay property taxes and other relevant rights and obligations. Not all of these incidents of ownership need occur concurrently before it is concluded that the person has beneficial ownership of the property, which is a question of fact in each particular case.

While legal ownership and beneficial ownership are usually combined in one person, there are instances where they are not. In this regard, the intent of the parties as expressed in documents, their action and handling of the property is vital for determining beneficial ownership.

As evident above, the determination of whether a person beneficially owns a property is a question of fact that can only be determined after a review of all the documents and the circumstances applicable to a particular situation. Because the subject matter of your inquiry involves a question of facts and a completed transaction, you may wish to contact the local TSO for an opinion.

We trust that these comments will be of assistance.

Yours truly,

Sandy Parnanzone
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy & Regulatory Affairs Branch