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:
Can beneficial interest in principal residence be severed from ownership of the balance of farm property where the farm house and 1/2 hectare cannot legally be severed from balance of farm?
POSITION TAKEN:
no
REASONS FOR POSITION TAKEN:
Ownership implies the right of alienation (the right to sell) and thus beneficial ownership of land cannot be severed if the land cannot be severed — what is left is an undivided interest interest in the whole
A. Humenuk
XXXXXXXXXX
932942
March 30, 1994
Dear Sir:
Re: Beneficial ownership of part of a property
We are replying to your letter of September 30, 1993 concerning Interpretation Bulletin IT-216 "Corporation Holding Property as Agent for Shareholder" and the various situations described in your letter whereby a taxpayer wishes to retain the beneficial ownership in a housing unit and one acre of land while divesting himself of the balance of land which is used in a farming business.
In each of the three situations described in your letter, it is assumed that severance of the housing unit and one acre of land from the rest of the property cannot be obtained under the relevant provincial legislation governing land use and subdivision. In the first situation, a corporation wishes to transfer beneficial ownership of the housing unit and one acre of land to a shareholder while retaining ownership of the farmland. In the second example, an individual holding farmland wishes to transfer ownership of the entire property (other than the beneficial ownership of the housing unit and one acre) to the corporation, using the rollover provisions in section 85 of the Income Tax Act (the Act) to defer any gain which would otherwise be realised on the transfer. In the third example, an individual wishes to transfer the property to a trust reserving beneficial interest in the housing unit and one acre of land for himself or herself, thereby realizing a capital gain eligible for the enhanced capital gain exemption on the balance of the property.
The guidelines for determining beneficial ownership are set out in Interpretation Bulletin IT-437 "Ownership of a Dwelling Property". Such a determination can only be made when all the facts of a particular case are known and thus we cannot provide a definitive response to your question without a review of all the relevant facts and documentation. If your enquiry relates to a completed transaction, you may wish to submit your enquiry along with all relevant facts and documentation to the local district taxation office for their views in this regard. However we to offer the following general comments which may be of assistance to you.
Two essential elements of "ownership" in the context of a principal residence are the right of alienation and the right of possession. The right to a share in the proceeds of the entire property does not constitute a right of alienation (the right to transfer said ownership to someone else). In the examples you provided, the essential rights of ownership of the principal residence and one acre of land cannot be transferred or retained separate from the ownership of the rest of the property because of the legal restrictions on subdivision. If the taxpayer transfers an interest in the property (beneficial or legal) to another person, that interest would be an undivided interest in the entire property.
As a result, it is our view that the taxpayers in your examples cannot effect the division of ownership in the manner so suggested.
We trust our comments will be of assistance to you.
Yours truly,
P.D. Fuoco for Director Business and General Division Rulings Directorate Legislative and Intergovernmental Affairs Branch
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