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.
XXXXXXXXXX
933142
Attention: XXXXXXXXXX
December 15, 1993
Dear Sirs:
RE: XXXXXXXXXX - Proposed Property Disposal
This is in reply to your enquiry dated October 15, 1993, requesting our opinion on the calculation of any taxes resulting from your mother's proposed transfer of property.
As the situation in your letter describes actual proposed transactions we unable to express an opinion on these proposals. As noted in paragraph 21 of Information Circular 70-6R2 (copy enclosed), we do not express opinions on specific proposed transactions other than as a reply to an advance income tax ruling request. As a consequence thereof, we may offer the following general comments.
Our Comments:
Where a taxpayer disposes of a dwelling which was used partially for rental purposes there will be a gain on the portion of the building that was used for rental purposes to the extent that the selling price exceeds the original cost. There will also be a gain on the portion of the dwelling used as a principal residence but it can be removed wholly or partially, by designating this portion of the home as the taxpayer's principal residence for certain years. To be a principal residence, a home (or part thereof) must be designated as such in the year of disposal. It will include, not only the building but up to one-half hectare or 1.235 acres of adjacent land. The designation is made on form T2091 to be filed with the tax return in the year of disposition.
When a taxpayer changes the use of a property, he or she is deemed to have sold that property at the fair market value and to have reacquired the same property immediately thereafter at the fair market value which becomes his or her new cost base. Where property has a dual use, (i.e. partly for rental and partly principal residence) its cost must be apportioned between the uses of the property on a percentage basis, and that basis will be used as the cost of the property on its eventual disposition. A taxpayer may elect to defer the recognition of a capital gain upon the change in use of a principal residence (from owner-occupied to income-producing rental) by designating the property as his or her principal residence for up to four years after the use has changed. Normally, this election must be filed in the year the change occurred however Interpretation Bulletin IT-120R3, at paragraph 31, permits a taxpayer to file a retroactive election in connection with a change in use of a principal residences.
The tax consequences of gifts of property to adult children are dictated by subsection 69(1)(b) of the Income Tax Act. In such cases the transferor would be deemed to have transferred the property at its current fair market value thereby triggering any taxable gain or loss upon the transfer. The recipient adult child would then be deemed to have acquired the property at its fair market value.
Gains realized on the disposition of real property (land and/or buildings) may be eligible for exemption from tax through use of the capital gains exemption. However, gains resulting from dispositions of real property occurring after February 1992 are generally no longer eligible for exemption, therefore, the portion of the gain that is eligible must be calculated by basically prorating the gain over the number of months owned before and after February 1992.
We are enclosing several publications that discuss some of the concepts described above in greater detail. Unfortunately, the 1993 versions of the guides had not yet been issued at the time of writing. They may be obtained from your District Office at a later date. The following may be of particular interest to you:
- Capital Gains Guide - Chapter 2 (pg.10) & Chapter 5 in respect of the property which does not qualify as a principal residence.
- Rental Income Guide - Chapter 3 "Principal Residence"
- IT-120R3 Principal Residence
- Form 2091 Designation of A Property as a Principal Residence.
Again, we cannot address your concerns directly unless your request is in the form of an advanced income tax ruling request, however we trust that our comments will assist you.
Yours truly,
R. Albert
A/Section ChiefBusiness & Property & Exempt Organizations SectionBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1993
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1993
Email this Content