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: Principal Residence - land in excess of 1/2 hectare
Position: Law generally explained
Reasons: Specific facts and documentation not available
XXXXXXXXXX 981912
M. Eisner
September 15, 1998
Dear Sir:
Re: Principal Residence Exemption
This is in reply to your letter of July 23, 1998, concerning the above-noted subject. We apologize for the delay in replying.
In your letter, you have outlined a situation where an individual purchased land approximately 35 years ago on which his home was constructed. The land was purchased in circumstances where it was necessary for the individual to own all 10 acres in order to obtain a building permit from the municipality. The individual now wishes to sell all or a part of the property. If only a part of the property is sold, the individual would continue to own an acre or two on which the home is located.
You have asked us about the principal residence exemption.
In an actual situation involving the principal residence exemption, it is necessary to review all the relevant facts and documentation before a definitive opinion can be provided. As such a review falls within the responsibility of tax services offices, you should contact the local office in your area in that regard. However, we are prepared to offer the following general comments.
Comments on the definition of "principal residence" in section 54 of the Income Tax Act have been set out in Interpretation Bulletin IT-120R4 “Principal Residence”, which has been enclosed for your convenience. Under that definition, if the total area of the contiguous land upon which a housing unit is situated exceeds 1/2 hectare, the excess land is considered not to have contributed to the use and enjoyment of the housing unit as a principal residence, unless it is established that the land in excess of 1/2 hectare was necessary for such use and enjoyment. Paragraphs 21 to 23 of IT-120R4 set out general comments in respect of land in excess of 1/2 hectare. We also note that the comments in paragraph 22 of that bulletin on a legally imposed minimum lot size exceeding 1/2 hectare only relate to a situation where residential zoning is involved.
For general comments on the situation where an individual’s housing unit is situated on land in excess of 1/2 hectare and part of the excess is severed from a property and sold, we refer you to paragraph 23 of IT-120R4. Consistent with the comments in paragraph 23 of IT-120R4, it is also our general view that if an individual’s housing unit is situated on land in excess of 1/2 hectare and it is feasible to sever part of the excess that is vacant land, this could be an indication that the vacant land was not necessary for the use and enjoyment of the housing unit as a residence even though the whole property was sold.
You may also wish to refer to the comments in paragraph 25 of IT-120R4, which discusses the situation where only part of a property qualifies as a principal residence.
As mentioned in paragraph 21 of IT-120R4, it is a question of fact in all cases as to how much, if any, of the excess land is necessary for the use and enjoyment of the housing as a residence and the onus is on you to establish that land in excess of 1/2 hectare was necessary for the use and enjoyment of the housing unit as a residence.
We trust that our comments will be of assistance to you.
Yours truly,
Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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