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: Whether adjacent bare lot can be included as a principal residence.
Position: No.
Reasons: Adjacent lot is owned under separate title and considered not necessary for the use and enjoyment of the residence situated on the other lot
2007-022745
XXXXXXXXXX Jack Szeszycki
(613) 957-9232
March 21, 2007
Dear XXXXXXXXXX:
Re: Principal Residence Exemption
We are responding to your letter of March 14, 2007, in which you requested our views as to the extent to which land is included as a principal residence for the purposes of the principal residence exemption.
It is our understanding of the facts, as presented in your letter, that there are two adjacent lots. One lot has a housing unit situated on it and the other lot is bare; that is, it is used primarily as a yard to the housing unit including a flower and vegetable garden. Although used as a single property each lot has separate title.
Section 54 of the Income Tax Act includes a definition of the term "principal residence". Paragraph (e) of that definition provides that land subjacent to the residence forms part of the principal residence as well as land immediately contiguous to the housing unit that can reasonably be regarded as contributing to the use and enjoyment of the housing unit as a residence. In addition, where the total land area, subjacent and contiguous, exceeds 1/2 hectare the excess is deemed not contribute to the use and enjoyment of the housing unit as a residence unless it can be established that the excess was necessary for the use and enjoyment of the housing unit.
Under the circumstances presented, the lot adjacent to the lot upon which the housing unit is situated, which is held under separate title, is capable of being disposed of separately and conceivably a separate housing unit could be erected on it by the buyer. It would therefore not be considered necessary for the use and enjoyment of the housing unit situated on the other lot. If the land area of the lot upon which the housing unit is situated exceeds 1/2 hectare in size, the excess would also be deemed not to be part of the principal residence unless it can be established that such excess is also necessary for the use and enjoyment of the residence. Interpretation Bulletin IT-120R6, paragraphs 14 to 17, discusses the factors taken into consideration in determining whether total land area in excess of 1/2 hectare is necessary for the use and enjoyment of the housing unit.
We trust our comments are of assistance to you.
Yours truly,
S. Parnanzone
For Director
Business and General Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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