14 July 1998 External T.I. 9813265 - AGR LAND RESERVE BC -MORE THAN 1/2 HECTARE LAND

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: whether placement in the agricultural land reserve of BC constitutes a land severance restriction which is applicable in determining whether the land in excess of 1/2 hectare is necessary for the use and enjoyment of the prin res

Position: no

Reasons: placement in the ALR does not constitute a land severance restriction - its purpose is to preserve farm land and when land is used in farming, such restrictions do not apply to determine whether the excess land can be considered part of the p/r. Following the Carlile decision, if the Commission governing the ALR makes a determination the effect of which is to impose land severance restrictions on the land, such restrictions may be used in making the determination - however it is a question of fact in each case as to whether such excess is in fact necessary for the use and enjoyment of the p/r

XXXXXXXXXX 981326
A. Humenuk

July 14, 1998

Dear Sir:

Re: Principal Residence - Land in excess of 1/2 Hectare

This is in reply to your letter of April 22, 1998, in which you ask whether a severance restriction imposed on land as a result of its placement in the Agricultural Land Reserve of British Columbia (the “ALR”) is a factor, in determining the amount of land that is considered to be part of the owner’s principal residence. In particular, you note that we have previously stated that severance restrictions which exist to preserve land for farm use are not applicable to such a determination.

As explained in paragraphs 26 - 30 of Interpretation Bulletin IT- 120R4, Principal Residence, the capital gain in respect of a principal residence located on land used in a farming business is determined under paragraph 40(2)(c) of the Act. For the purpose of paragraph 40(2)(c), a severance restriction imposed to preserve land used for farming is not relevant in determining whether the land in excess of 1/2 hectare is necessary for the use and enjoyment of the principal residence.

The ALR and the Commission which oversees it were established by means of the Agricultural Land Commission Act of British Columbia. The purpose of the ALR is to preserve agricultural land for present and future generations and to encourage the establishment and maintenance of farms. While there is no minimum lot size established by the Commission for lands within the ALR, a person may not use agricultural land within the ALR for any purpose other than farm use or a use that is permitted by the Agricultural Land Commission Act, the related Regulations or an order of the Commission. Application may be made to the Commission to have land included in, or excluded from, the ALR. If the owner of land within the ALR wishes to use the land for a non-farming use or to subdivide the land, an application must be made to the Commission. The chances of success of such an application depends entirely on the specific circumstances involved. The subdivision of land that is the subject of a successful application to the Commission must still comply with local bylaws regulating the use of the land.

Since the Agricultural Land Commission Act does not impose a minimum lot size on land which is located within the ALR and does not prohibit the subdivision of land within the ALR, the inclusion of land in the ALR is not itself, a factor in determining whether any excess land is necessary for the use and enjoyment of the residence. However, to the extent that a severance restriction has been imposed by the Commission upon the land surrounding a principal residence and that land is not being used for income earning purposes, such a restriction will be considered in determining whether the land in excess of 1/2 hectare is necessary for the owner’s use and enjoyment of the residence as a principal residence. It should be stressed that it is a question of fact as to whether any portion of the excess land is necessary for the use and enjoyment of an owner’s principal residence and that the onus of establishing any such excess to be so necessary rests with the owner of the property.

A principal residence designation is made in the taxation year in which the disposition of property occurs. A determination of how much land can be considered part of a principal residence in any particular case is based on a review of all the relevant facts and documentation and is normally the responsibility of the tax services office serving the area where the property is located. If you require additional assistance with a particular property, you may wish to submit all the pertinent information to the appropriate tax services office.

We trust that these comments will be of assistance.

Yours truly,

J.F. Oulton, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch