13 May 1988 Income Tax Severed Letter 5-5852 - Principal Residence Subjacent & Contiguous Land in Excess of One-half Hectare

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.

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92429 92490 R. B. Day (613) 957-2136

MAY 13 1988

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Re: Principal Residence Subjacent & Contiguous Land in Excess of One-half Hectare The Queen v. Yates 83 DTC 5158 and 86 DTC 6296

We are writing in reply to your letters of March 25 and April 5, 1988, wherein you requested our views as to whether 15 acres of land would qualify as an individual's principal residence in the following hypothetical situations.

Situation A

1. An individual owns a property that consists of, say, 15 acres, on which is situated the individual's personal residence.

2. At the time of purchase of the property, a minimum lot size was required - say, 5 acres.

3. The property has been in an Agricultural Land Reserve from the date of purchase until a few months before sale by the individual.

4. Under the terms of the Agricultural Land Reserve, the land required specific consent from an Agricultural Land Commission before any . subdivision could take place. The individual has never applied for, and therefore has never been granted, the right to subdivide the property. In addition, at the time of purchase of the property the consent to subdivide the property had not been applied for or granted.

Situation B

1. The assumptions in paragraphs 1, 2 and 4 in Situation A remain the same.

2. The assumption in paragraph 3 is revised as follows:

At the time of purchase of the property, it was zoned as agricultural with approval required for any subdivision of the property or for any additional housing to be constructed on the property. After the property was purchased, it was placed in an Agricultural Land Reserve and remained in the Agricultural land Reserve until a few months before sale by the individual.

It is your view that in order for the entire 15 acres to qualify as the principal residence it would be necessary to establish that the amount of land in excess of one-half hectare (one acre) was necessary for the individual's use and enjoyment as a principal residence. Since the.- individual had to purchase the entire 15 acres, it should be said that the total acreage was necessary for the individual's use and enjoyment. This position is supported, in your view, by the wording in subparagraph 54(g)(v) of the Income Tax Act (the "Act"), the commentary from the Yates decision cited in your letter and the press release issued by the Minister of National Revenue on April 13, 1987.

With respect to the amount of property in excess of five acres, it is also your view that it should be considered to be part of the principal residence as the property could not be subdivided without the consent of the relevant authority. This consent was never applied for by the individual at the time of purchase or subsequent to the purchase. Consequently, he had to purchase the full 15 acres.

The Federal Court decision in the Yates case, was based on a particular finding of fact peculiar to that decision. If the Yates decision is to be used by any individual in claiming, as a principal residence, subjacent and contiguous land in excess of one-half hectare in area, the facts in each case should be virtually identical with that decision.

The principal that evolved from the Yates decision was that where a conveyance of residential property takes place in areas in which minimum lot sizes are imposed by municipal bylaws or provincial legislation in force at the time the property is acquired, the minimum residential parcel is considered to be the minimum amount that would be necessary for the use and enjoyment of the residence throughout the period that the property is continuously owned.

In the situations described above, and in reference to the Yates decision, it is our view that a minimum lot size of five acres has been established. For purposes of the application of paragraph 54(g)(v) of the Act the onus of proof rests with the taxpayer to establish that any portion of the subjacent and contiguous land in excess of the five acre minimum lot size, may be reasonably regarded as contributing to the use and enjoyment of the housing unit or residence.

Yours truly,

ORIGINAL SIGNED BY ORIGINAL SIGNÉ PAR ROBERT H. JOYCE

for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch