Principal Residence


Stuart (Estate) v. Canada, 2004 DTC 6173, 2004 FCA 80

Counsel for the taxpayer unsuccessfully argued that the personal circumstances of the deceased taxpayer represented a personal barrier to subdivision, namely, that she lacked sufficient funds to effect a subdivision of the property. Malone J.A. stated (at p. 6176):

The evidence that is relevant to the question of how much land in excess of 1/2 hectare is necessary to the use and enjoyment of a housing unit as a residence is mainly objective, and must be linked to the legal and physical characteristics of the property. Without intending to be exhaustive, the relevant factors would typically include zoning restrictions affecting the use or sale of the property, access to roads and necessary utilities, and geographical or topographical barriers to subdivision.

Carlile v. The Queen, 95 DTC 5483 (FCA)

The taxpayer owned a property of approximately 33 acres of which three acres around her house were for personal use and 25 acres of the remaining acreage were rented to a farmer. The relevant by-law prescribed a minimum lot area of 25 acres for farming use and, for residential use, required a minimum lot area of 20,000 square feet. Desjardins J.A. found that the taxpayer had satisfied the requirements of the "objective test" given that residential use could only be obtained through consent under the provisions of the Planning Act, and given evidence that there was no assurance that such consent could have been obtained. Accordingly, the principal residence exemption was available on a sale of the whole property.

Augart v. The Queen, 93 DTC 5205 (FCA)

The taxpayer was entitled to the principal residence exemption on the capital gain arising on the sale, under threat of expropriation, to the local municipality of the full 9 acres on which his rural home was situate because subdivision controls would have precluded him from selling to a normal purchaser any portion of the parcel. It was essentially irrelevant that the minimum lot size under the prevailing by-laws at the time of purchase was 3 acres, given that the subdivision controls would have precluded the taxpayer from selling off the excess 6 acres. Robertson J.A. noted (p. 5209) that the term "enjoyment" included not only the exercise of the right of possession, but also included the right of alienation, and that a disposition of the 9 acres was necessary in order for the taxpayer "to exercise his right of alienation or, to trace the language of the Act, to the 'enjoyment' of his residence".

Words and Phrases

Fourt v. The Queen, 91 DTC 5631 (FCTD)

Lot 77 adjoined the lot (Lot 76) on which the taxpayer had her house and was used as base for a storage shed, an outhouse, an incinerator, some lawn and parking. The combined area of the two lots was less than 1/2 hectare. Lot 77 was found to contribute to the use and enjoyment of Lot 76, notwithstanding that it was not necessary to such use and enjoyment. Strayer J. stated (p. 5634)):

... Where there is credible evidence, as there is here, of actual use and enjoyment by the taxpayer of the contiguous land in connection with her house, and such use and enjoyment is not of an exaggerated or a natural sort, a great deal of weight must be attached to it in assessing whether such use can be reasonably regarded as contributing to the taxpayer's use and enjoyment of his residence.

Windrim v. The Queen, 91 DTC 5221 (FCTD)

The taxpayer, who purchased 17.6 acres of land knowing that it could not be subdivided, and who lived on the land for several years in a mobile home, was not entitled to claim the principal residence exemption with respect to more than the two hectares allowed by the Minister, because the mobile home as a supposed "housing unit" "simply had no identifiable subjacent or contiguous land" (p. 5227) given that the mobile home was not required to be affixed to any given portion of the land, and because, unlike the Yates case, when the taxpayer bought the lot he did not wish it to be subdividable, but instead "knowingly and quite intentionally bought a grandiose lot with its little trout-stocked lake, its ridge with a view of the sea, its forest and its forest trails" (p. 5227).

Muldoon J. also noted that "the meaning of 'enjoyment/jouissance' eschews all connotation of 'hedonism or volupté'" (p. 5226).

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Similar Statutes expropriation and tax legislation not in pari materia 30

Mintenko v. The Queen, 88 DTC 6537, [1989] 1 CTC 40 (FCTD)

A farm house which the taxpayer lived in from April to October of 1976 before being told by his bride-to-be that she refused to live there, was "ordinarily inhabited" by him in the year. The taxpayer also was able to establish that an area of uncultivable land containing about three acres immediately surrounding the house on which was located the well, some outbuildings, shade trees and a little grass was essential to the enjoyment of the residence, bearing in mind that there were no municipal water and services.

The Queen v. Yates, 83 DTC 5158, [1983] CTC 105 (FCTD), aff'd 86 DTC 6296 [1986] 2 CTC 46 (FCA)

The taxpayer met the onus of showing that all of a 10 acre lot contributed to his enjoyment of his house where it was shown that 10 acres was the minimum residential parcel permitted by a zoning by-law, notwithstanding that 9 acres were not used for residential purposes but were instead rented to a neighbouring farmer who grew crops on them.

The Queen v. Mitosinka, 78 DTC 6432, [1978] CTC 664 (FCTD)

The taxpayer rented out 1/2 of an unusual structure which was analogous to a duplex but which had a common basement and a window connecting the adjoining kitchens. In light of the facts that the building "could, and did, house separate families, who had separate facilities, and paid for separate services," only 1/2 of the building was held to be the "housing unit" of the taxpayer. The Minister's allocation of 1/2 of the underlying land to the taxpayer's principal residence was not shown to be unreasonable.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Land 91

See Also

Palardy v. The Queen, 2011 DTC 1188 [at 1050], 2011 TCC 108

The taxpayer sold a residence eight months after the point at which she had completed its construction and moved in. The Minister characterized the sale as a commercial transaction, and reassessed the taxpayer beyond the normal reassessment period on the basis that the proceeds were income from business. In so doing, the Minister had relied in part on the taxpayer's experience as a real estate agent, but in fact the taxpayer had left the real estate business more than 25 years before the sale in issue.

In concluding that the reassessment was not statute-barred, Hogan J. found that the taxpayer's position (that she had realized a capital gain that was eligible for the principal residence exemption) was not unreasonable, and stated (at para. 28):

[E]ven if a person occupies a building for a short time, it can be considered his or her principal residence.

Boulet v. The Queen, 2010 DTC 1015 [at 2602], 2009 TCC 261

A basement apartment in the house inhabited by the taxpayer, which had a kitchenette, bedroom and bathroom, was accessible only through an exterior door and had its own municipal address, was not part of the taxpayer's principal residence since the evidence produced showed that the taxpayer did not ordinarily inhabit the basement during the year in which the house was sold.

Words and Phrases
housing unit
Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Land binding NAL agreement suppressed land's FMV 207
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1) benefit conferred when shareholder receives unconditional right thereto, rather than when such right subsequently exercised 348

Sidhu v. The Queen, 2004 DTC 2540, 2004 TCC 174

In finding that a property that the taxpayer had used as a rental property for approximately nine years but which allegedly was used for a short period of time as a personal residence before its sale did not qualify as the taxpayer's principal residence", Hershfield J. stated (at p. 2546) that a line of cases had found "that a casual residence, which is a residence occupied by a person but which is not reflective of where that person lives in the course of his/her customary mode of life, is not a residence at which that person 'ordinarily' resides".

Estate of Myrth May Stuart v. The Queen, 2003 DTC 329, 2003 TCC 171, aff'd supra.

The estate of the deceased taxpayer was unable to establish that more than one-half hectare of a 1.4 hectare property was necessary for the use of the property as a principal resident notwithstanding evidence that the deceased taxpayer ate daily from fruits and vegetables harvested from the property. Ripp T.C.J. stated (at p. 336) that:

"The word 'necessary' in the section 54 definition of 'principal residence' connotes a term that is indispensable, not one that is convenient, useful or suitable."

Words and Phrases

Low v. The Queen, 93 DTC 927 (TCC)

The taxpayer failed to establish that the ownership of a Florida condominium was held by a Liechtenstein "establishment" as bare trustee for the taxpayer. Accordingly, the taxpayer was unable to claim the principal residence exemption.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Ownership 55

Lewis v. Lady Rook, [1990] BTC 9 (Ch. D.)

The Court upheld the commissioners' finding that a gain on the disposal of a gardener's cottage 175 metres from the main house on a 10.5 acre estate constituted a part disposal of the taxpayer's main residence for purposes of s. 101(1) of the Capital Gains Tax Act, 1979.

Flanagan v. MNR, 89 DTC 615 (TCC)

A lake front lot to which the taxpayer drove his mobile vans from his Vancouver residence for weekends and vacations qualified as his principal residence on the basis that it was subjacent or contiguous land which contributed to his enjoyment of his vans, and on the basis that "a person may ordinarily inhabit more than one housing unit in a year if he does so in the course of the customary mode of his life." However, a second lot to which the septic system of the first was connected, did not qualify.

Williams v. Merrylees, [1987] BTC 393 (HCJ.)

A lodge on a four acre estate that was located about 200 metres from the main house and was occupied by a gardener employed by the taxpayer was held to be part of his residence.

Markey v. Sanders, [1987] BTC 176 (HCJ.)

In order for two buildings to be regarded as one residence, the occupation of the second building must increase the taxpayer's enjoyment of the main building, and the second building must be regarded as being very closely adjacent to the main building. The second test was not satisfied with respect to a three-bedroom servant's house which was "sited well over an acre's worth of land away from the main residence and separated from it by a paddock".

Batey v. Wakefield, [1981] T.R. 251, [1982] 1 All E.R. 61 (C.A.)

S.29(1) of the Finance Act 1965 exempted an individual from capital gains tax on the disposition of "a dwelling house which is ... his own or main residence". A family occupied an 8-room house in the country on the weekends, and a caretaker-gardener, who lived with his family in a chalet-bungalow on the grounds that was separated from the main house "by about the width of a tennis court and a yew hedge", took care of the premises during the week.

It was held that the exemption was available. "[I]n the ordinary use of English, a dwelling house, or a residence, can comprise several dwellings which are not physically joined at all. For example, one would normally regard a dwelling-house as including a separate garage." Although the bungalow provided separate accommodation to the caretaker's family, its purpose was to assist in servicing the main building.

R. v. Gerencer (1979), 105 DLR (3d) 284, [1980] 1 S.C.R. 403

The whole of a small farm, the produce from which was used by the owner for home use and animal fodder, was held to be "used by the owner thereof for the purposes of his residence" within the meaning of s. 24 of the Expropriation Act (Canada).

Administrative Policy

21 June 2017 External T.I. 2017-0687961E5 - Principal residence exemption and farm property

a non-severable parcel of farming land could not have two beneficial owners of the principal residence and farming portions thereof

Although a farmhouse cannot legally be legally severed from the rest of the (farming) parcel of land on which it is situated,the individual owner would like to transfer the farm to a wholly-owned corporation while retaining beneficial ownership of the farmhouse. Could the principal residence exemption be claimed when the parcel is ultimately sold by the corporation? CRA responded:

[T]he essential rights of ownership of a property used as an individual’s principal residence cannot be transferred or retained separate from the ownership of the rest of the property because the individual does not retain the right of alienation (that is, the ability to transfer the property). The right of alienation together with the right of possession, are the two essential elements of ownership in the context of a principal residence.

Therefore…the individual would not be able to claim the principal residence exemption on a subsequent disposition of the property by the corporation.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Ownership purported retention of beneficial ownership of portion of non-severable parcel of land was ineffective 110

S1-F3-C2 - Principal Residence

Meaning of housing unit

2.7 ...

  • a housing unit... could include:
    • a house;
    • an apartment or unit in a duplex, apartment building or condominium;
    • a cottage;
    • a mobile home;
    • a trailer; or
    • a houseboat.

Meaning of ordinarily inhabited/Rental to child

2.11 ... Even if a person inhabits a housing unit only for a short period of time in the year, this is sufficient for the housing unit to be considered ordinarily inhabited in the year by that person. ...[I]f the main reason for owning a housing unit is to earn income but the housing unit is rented to the taxpayer’s child who also ordinarily inhabits the housing unit in that year, the taxpayer could still designate that housing unit as the taxpayer’s principal residence provided the other conditions are met.

Land exceeding 1/2 hectare

2.34 Land in excess of one-half hectare may be considered necessary where the size or character of a housing unit together with its location on the lot make such excess land essential to its use and enjoyment as a residence, or where the location of a housing unit requires such excess land in order to provide its occupants with access to and from public roads. Other factors may be relevant in determining whether land in excess of one-half hectare is necessary for the use and enjoyment of the housing unit as a residence, such as, for example, a minimum lot size or a severance or subdivision restriction... .

2.35 A municipal or provincial law or regulation may require, for example, a minimum lot size for a residential lot in a particular area that would be in excess of one-half hectare, or impose a severance or subdivision restriction with respect to a residential lot in a particular area restricting the lot from being one-half hectare or below. If such a law or regulation existed in any given year during which the taxpayer owned the property, the area that is in excess of one-half hectare would normally be part of the principal residence for that particular year.

7 October 2016 APFF Roundtable Q. 2, 2016-0652841C6 F - Changement partiel d’usage - immeuble locatif et résidentiel

triplex contained separate housing units

An individual owner of the whole triplex used Unit 1 (representing 50% of the area) for direct personal use and rented out the other two units – then some years later (at the beginning of “Year 11”), started renting out Unit 1, moved into Unit 2 for direct personal use and provided Unit 3 to family members at a low rent.

CRA considered that because, after this change, the use of the single property (the triplex) was still 50% personal and 50% 3rd-party rental, the change of use rules in s. 45 did not apply. However, on a subsequent sale of the triplex, the individual would be required to make separate designations for each unit for which he was claiming the principal residence exemption. For example, in the case of Unit 1, a portion of the gain (calculated using appropriate allocations based on relative values) "could be designated for purposes of the principal residence exemption."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 45 - Subsection 45(1) - Paragraph 45(1)(c) switch between which triplex units used for personal/family rental or 3rd-party rental did not trigger change of use 237
Tax Topics - Income Tax Act - Section 40 - Subsection 40(2) - Paragraph 40(2)(b) on sale of triplex, individual can claim exemption only for years in which particular units were used personally or by children 387

21 January 2016 Ordre des CPA du Québec Personal Taxation Roundtable Q. 9, 2016-0625141C6 F - Principal residence - duplex

interior access door to other unit in duplex occupied by elderly parent, and meal sharing, not sufficient to render as one housing unit

An individual purchases a duplex to support and provide care to an elderly parent, and renovates it so a door now provides interior access between the two units. Meals are mostly are prepared and taken (with the parent) in the living space of the owner and the owner’s family. On resale of the property, would there be a disposition of one or two housing units? What if the duplex belonged to the parent? CRA responded (TI translation):

[T]wo units of a duplex will be considered as together constituting a single housing unit to the extent that they are sufficiently integrated so that it is not possible to live normally in the living areas of one of the units without also having access to the other unit in order to use its facilities. This will be the case, for example, if one of the units contains all the bedrooms while the other unit contains the kitchen and the bathroom, and the two units are jointly used for residential purposes as a single unit. …

[T]he fact that inner door access is installed between the two units or that meals are prepared and taken the vast majority of the time in one of the two units does not appear to be sufficient for the two units to be considered as a single housing unit for the purposes of the I.T.A. The fact that the two units each have a bedroom, a kitchen and a bathroom and separate street addresses and their own electric meter are elements that tend to indicate that they instead are two separate housing units. On this basis, only the housing unit ordinarily inhabited by the individual qualifies as a principal residence. …

Our comments would be the same if the property belonged to the parent, except that in this case, one or other of the housing units could qualify as the principal residence of the parent.

Words and Phrases
housing unit

4 March 2015 Internal T.I. 2015-0567791I7 F - Exemption résidence principale louée à un enfant

house leased to son with CCA claimed can be designated as principal residence

A taxpayer claims capital cost allowance ("CCA") as a deduction from his rental income for the period when his housing unit is leased to his son. Can this taxpayer to designate this dwelling as his principal residence? After noting that para. (a) of the principal residence definition references ordinary habitation by the taxpayer’s child, CRA stated:

[T]he fact that a taxpayer claims CCA for a dwelling that is leased to his or her child will not prevent the taxpayer from designating the dwelling as his or her principal residence insofar as the housing unit was normally inhabited by the taxpayer's child…. However, when disposing of the property, any recapture of depreciation must be included in computing the taxpayer's income.

23 June 2014 External T.I. 2014-0528271E5 F - Terrain « adjacent » à la résidence principale

meaning of immediately contiguous lands

The taxpayers, whose "Lot 1" included a floodplain, were legally precluded from expanding their residence until they purchased the nearby "Lot 2." Is Lot 2 part of their principal residence? CRA stated (TaxInterpretations translation):

The English version of the Act translates the expression "terrain adjacent" by "immediately contiguous land." This text…clearly requires a physical contact between the lots. Consequently…Lot 2 is not "adjacent" to Lot 1…[and] Lot 2 therefore is not eligible for the capital gains exemption for a principal residence.

22 May 2014 External T.I. 2014-0519811E5 F - Droit d'usage au Québec pré-1991

usufructuary of duplex unit (with her right acquired pre-1991) entitled to claim principal residence exemption on post-1991 disposition

Mother donated (before 1991) a Quebec duplex (Units A and B) to her son and daughter-in-law (the "Couple") and, in the donation agreement, Mother reserved the right to live for free in Unit A. On a subsequent disposition (after 1991) of the duplex, will Mother be regarded as having remained the owner in respect of her usufructuary right, so that she can claim the principal residence exemption? CRA responded:

2009-0310751 [concluded] that a usufructuary was the de facto owner of an immovable in accordance with the pre-1991 version of subsection 248(3)… .

As a result, Mother could claim the principal residence exemption for Unit A, which is the housing unit she ordinarily inhabits and to which she is entitled, if she also meets all the other conditions set out in the definition… . Since the Couple is a separate family unit from Mother and ordinarily reside in Unit B, they could claim the exemption for that unit subject to all other conditions being met.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Ownership usufructuary of duplex unit was de facto owner thereof 65
Tax Topics - Income Tax Act - Section 248 - Subsection 248(3) effective grandfathering of right as usufructuary which arose before 1991 155

28 August 2013 External T.I. 2013-0498701E5 - Principal Residence Exemption - Excess Land

After noting that a minimum lot size or severance restriction would generally support a taxpayer's claim that land more than a half-hectare is necessary to the use and enjoyment of a principal residence, CRA stated:

[I]n circumstances where subsequent to a taxpayer's acquisition of a particular property there has been a relaxation of a previously existing minimum lot size or severance restriction, the taxpayer would need to clearly demonstrate that any excess land continued to be necessary for the use and enjoyment of the housing unit as a residence for each of those years even if the taxpayer did not take any steps to actually sever the excess land.

18 June 2013 External T.I. 2013-080951E5 -

Ontario's MicroFIT program provides a mechanism for individuals to sell electricity to the Ontario Power Authority that is generated from, e.g., photovoltaic solar panels. CRA maintains FAQs on the MicroFIT program at

As per Question 7 of the FAQs, Reg. 1100(24) limits the CCA on solar equipment to the income from selling the electricity generated therefrom.

Where a principal residence is sold that has solar cells, CRA stated:

[W]hen you sell your residential home, a reasonable portion of the sale price must be allocated as proceeds of disposition of the Solar Equipment. The proceeds of disposition should be reported in Area A on page 4 of your T2125 Statement of Business or Professional Activities. The balance of the sale price is generally allocated to the residential home. If the residential home was designated as a principal residence for every year that it was owned, there will be no income tax consequences on the disposition. You should also note that the disposition of the Solar Equipment may result in a recapture into income of any CCA claimed on the equipment and such recaptured income must be reported for income tax purposes.

13 February 2013 Internal T.I. 2012-0448391I7 - Validity of late-filed election and designation

The taxpayer, who sold a duplex to a non-arm's length person, filed his tax return on time without disclosing the disposition, then approximately two years later designated half of the duplex as a principal residence for various taxation years. CRA stated:

[T]here is no legislative authority to accept a late-filed principal residence designation.

5 November 2012 External T.I. 2012-0445241E5 F - 54 et 40(2)b)

whether a duplex is a single housing unit turns on the degree of independence v. integration of the two units

A taxpayer has owned a duplex with two distinct municipal addresses, two main independent entrances, one heating system, two hot water tanks and one municipal tax account. The lower unit has been occupied by the taxpayer. The upper unit, while initially vacant, rented out then occupied by the taxpayer’s son, has more recently been used by the taxpayer and spouse for storage or as additional space for recreational activities. Is the duplex a single "housing unit" for ss. 54 and 40(2)(b) purposes? CRA responded:

[T]he fact that there are two different municipal numbers can lead to a conclusion that there are two housing units in a property. The existence of separate entrances, separate heating systems, separate hot water tanks or a tax bill stating separate municipal addresses are other examples of factors that can also to [such] a conclusion … .

…[T]here is only one housing unit in a property for the purpose of applying the definition of "principal residence" in section 54 where two units are sufficiently integrated such that the use of and access to one of the units is a condition for the full enjoyment of the other unit. Thus, if each unit can be normally be inhabited without access being provided to the other unit (for example, if each unit has a kitchen and a bathroom and they both have separate access), it would be difficult to regard the two units as a single housing unit … .

6 February 1996 T.I. 952945 (C.T.O. "Life Leases")

Where an exchange for a lump sum prepayment and monthly fees, an individual is given a lease to occupy a specific housing unit in a building owned by a non-profit organization for life, the life lease should qualify for the principal residence exemption provided that it is "a bona fide contract of lease creating a leasehold interest".

6 February 1996 T.I. 952944 (C.T.O. "Proprietary Leases")

Where an individual owns shares of a non-profit organization owning a building in which a number of housing units will be created, share conditions containing a right and obligation of the shareholder to enter into proprietary lease with the organization for a specified period of time for a particular housing unit apportioned to the shares would not qualify as a leasehold interest for purposes of the principal residence definition.

Income Tax Technical News, No. 7, 21 February 1996 (cancelled)

The filing of a protective capital gains election under s. 110.6(19) in respect of a property will not by itself prejudice a claim that the entire property qualifies as a principal residence.

4 May 1995 Memorandum 950960 (C.T.O. "Principal Residence Exemption and Capital Gains")

Detailed discussion of whether the principal residence exemption is available where a client purchases a house located on a lot under ½ hectare in size and later, after obtaining approval for a subdivision, either sells the additional lot, or builds a house on the additional lot and sells it; and in a situation where the client buys a house located on a ¼ acre and also buys the adjacent ¼ acre lot, either at the same or at a subsequent time.

7 March 1995 T.I. 950030 (C.T.O. "Principal Residence and Capital Gains")

Where the father owned and lived in a residence with his adult son and, after his remarriage, moved in with his new spouse while his son continued to live rent-free in the residence, the property continues to qualify as the father's principal residence, with the result that a deemed gain arising on a subsequent transfer of the residence to his son is exempt.

23 February 1995 943149 (C.T.O. "Principal Residence Exemption & Capital Gains Election")

A taxpayer and his wife who in 1981 subdivided their principal residence property (which was under 1/2 hectare in area) and recently constructed a new residence on one of the lots, would be entitled to the principal residence exemption on the disposition of the second lot, given the position in IT-120R4, paragraph 20, that no proof normally is required with respect to the "use and enjoyment" requirement where the land does not exceed 1/2 hectare.

9 February 1995 Memorandum 950255 (C.T.O. "Principal Residence Exemption")

Where both the cottage and the house were registered in the husband's name from 1972 until the recent transfer of the cottage into the wife's name, the wife will be able to designate the cottage as her principal residence for the years 1972 to 1981 provided that she meets the "inhabited" criteria in the principal residence exemption, given that under s. 40(4)(a) she will be deemed to have owned the cottage for the length of time that her husband owned the cottage.

16 August 1994 T.I. 940581 (C.T.O. "Principal Residence")

The principal residence exemption is available in respect of a house owned by a married couple that is occupied by and rented to their adult child even if they have claimed capital cost allowance on the house.

2 June 1994 T.I. 933453 (C.T.O. "Principal Residence for Personal Trust and Beneficiaries")

A discretionary beneficiary of a personal trust cannot claim a separate principal residence from the personal trust if the home belonging to the personal trust is occupied by an adult child.

21 January 1994 T.I. 932197 (C.T.O. "Personal Residence")

Shares in a co-operative that constructs a building of which 15% of the square footage is to be leased commercially will not qualify as having been acquired for the sole purpose of acquiring a housing unit.

18 September 1992 T.I. (Tax Window, No. 23, p. 3, ¶2177)

RC has no administrative practice to depart from the requirement in s. 54(g)(iii) that the separation be under a judicial separation or pursuant to a written separation agreement.

14 March 1990 T.I. (August 1990 Access Letter, ¶1370)

Although a priori a building held by a superficiaire will be eligible for the principal residence exemption, the right held by the superficiairee should encompass some or at least many of the attributes of ownership, such as the ability to dispose of the building or mortgage it.

23 February 1990 T.I. (July 1990 Access Letter, ¶1347)

In a situation where a building was held in joint tenancy by an individual and a corporation which he owned, the entire portion occupied and used by the individual could qualify as his principal residence. The proceeds of disposition of the principal residence portion of the property would be the same proportion of the entire proceeds that the fair market value of the principal residence portion would be of the fair market value of the entire property at the time of disposition.


Marjorie Bergeron, "Principal Residence: When Civil Law Muddles Tax Law", Canadian Tax Focus, Vol. 3, No. 2, May 2013, p. 8.

…the right of ownership may be dismembered into usufruct, use, servitude, and emphyteusis under articles 1119 et seq. of the Civil Code of Québec (CCQ). Let us assume that one of these dismemberments applies to a property "ordinarily inhabited" within the meaning of "principal residence" in section 54. Suppose that a widow with a usufruct lives in the principal residence, but the bare (or legal) ownership belongs to the children…. Can each of the two parties claim an exemption for capital gain?

For federal income tax purposes, the answer is normally yes. this conclusion is based on a reading of clause 248(3)(a)(i)(A) of the Act, which stipulates that "the usufruct, right of use or habitation, or substitution, as the case may be, is deemed to b4e at that time a trust," and of paragraph (c.1) of the definition of "principal residence" in subsection 54, which states that a trust may designate a property as its principal residence.

Gene Katz, "The Principal Residence Exemption", Personal Tax Planning, 2001 Canadian Tax Journal, Vol. 49, No. 4, p. 990

Paragraph (a)

See Also

Dusablon v. Agence du revenu du Québec, 2018 QCCQ 3032

taxpayers renovated and sold without moving in

The two taxpayers, who were work colleagues and joint renters of a Montreal apartment, acquired a house on Mount Royal in a dilapidated condition for a price of $695,000 from the executors of an estate (who sold without any representations made as to the condition of the property), spent $350,000 on having substantial renovations made, and put the property up for sale seven months after its acquisition at a price of $1,250,000, which resulted in its sale at that price two months later. They did not report their gain, and the ARQ assessed on the basis that their gain was on capital account but was not eligible for the principal residence exemption. They had never moved into the property, had any meals there, moved any of their personal effects there or changed their address with government authorities to that address.

In finding that the taxpayers had not “inhabited” (let alone “ordinarily inhabited”) the property, so that the principal residence exemption was not available, Edwards JCQ noted that the taxpayers had not pleaded that they had “inhabited” the property but rather that they had "occupied" it by reason of their supervision of (and, in the case of one of the taxpayers, his participation in) the renovation work, noted (at para. 43) that the applicable test was of “inhabiting,” and stated (at para. 52, TaxInterpretations translation) that the word “inhabit” “does not include the intention to inhabit a place, but is limited to in fact inhabiting there.”

In any event, even an intention to inhabit was not established.

He also quoted with approval the statement in Rebus, at para. 23 that:

[T]he words "ordinarily inhabit" mean "normally occupy as a home".

Administrative Policy

21 January 2016 Roundtable, 2016-0625161C6 F - Résidence principale habitée par un enfant

related occupant of a principal residence can be charged FMV rent

Could a housing unit qualify as a principal residence of a taxpayer if the taxpayer rented the property to a child for a fair market value (or less than fair market value) rent? CRA responded (TI translation):

The definition of principal residence does not provide that a housing unit which is rented cannot be a principal residence when the tenant who lives in the unit is one of the persons listed in paragraph (a) of this definition. Consequently, we are of the view that the mere fact that a taxpayer rents a housing unit to a child for a rent corresponding to its fair market value or some other value, will not prevent the taxpayer from designating this unit as his principal residence provided that all the conditions provided in the definition of "principal residence" are satisfied.

29 August 2014 External T.I. 2014-0541901E5 - Meaning of "child" in "principal residence"

occupation by adult child

A housing unit owned by a particular individual could still qualify for the principal residence exemption where it was ordinarily inhabited by the individual's adult child and not the particular individual.

9 July 2014 External T.I. 2014-0527591E5 F - Résidence principale

housing unit rented to son and unrelated roommate potentially could qualify as principal residence

An individual owns a housing unit that he leases to his adult son and to unrelated individuals who are the son’s roommates, all of whom ordinarily inhabit the unit. Is the exemption available? CRA responded:

[A]t least part of the housing unit is "ordinarily inhabited" by the son. If this is the main use of the housing unit and if the … three criteria [in S1-F3-C2] are met, the housing unit could qualify in its entirety as a principal residence… .

….On the other hand, if the income producing activity is significant, structural changes have been made or CCA has been claimed for the property, only the part of the housing unit used for personal purposes by the son will qualify as a principal residence.

…[T]he designation of the rental property leased to the son as a principal residence, in whole or in part, … will affect the calculation of such exemption upon the individual's disposition of his own principal residence.

30 March 2012 Internal T.I. 2011-0408311I7 F - Résidence principale

must be described combination of ownership and ordinary habitation

Mrs. X used the shares of the inheritance of her and her two minor sons (Son A and Son B) to fund the purchase of a condominium unit that served as residence. The residence was initially registered in the names of Son A and Son B but she paid all the residence expenses. Mrs. X claims that there was a verbal agreement among them that she had the right of ownership and that Son A and Son B would recover their share of the inheritance of Mr. X at the death of Mrs. X. In order to regularize the situation, Son A and Son B transferred the residence to Mrs. X in consideration for a stipulated sum, and the transfer was duly registered in the land register of Quebec. Mrs. X resided in the residence at all times. CRA stated:

[A] housing unit will not qualify as a principal residence for a taxpayer who ordinarily inhabits the residence unit where that taxpayer does not own it. Similarly, a housing unit will also not qualify as a principal residence for an owner when the owner, the owner’s spouse or common-law partner or former spouse or common- law partner or a child of the owner do not ordinarily inhabit it. In such a situation, neither the taxpayer who ordinarily inhabits the residence unit nor the owner of the residence unit will be able to claim the principal residence exemption under paragraph 40(2)(b).

Locations of other summaries Wordcount
Tax Topics - General Concepts - Ownership ownership of home generally follows legal title 252

Paragraph (c)

Administrative Policy

5 October 2018 APFF Financial Strategies and Instruments Roundtable Q. 11, 2018-0761571C6 F - Missing info on disposition of principal residence

CRA is only waiving penalties for late-filed principal residence dispositions for 2017 and 2016 returns

Commencing in 2016, an individual who had disposed of a principal residence was required to indicate particulars on page 2 of Schedule 3 and, where a particular case was ticked off, complete a Form 2091. For 2016 dispositions, CRA would accept a late designation, and without a penalty being imposed except in the most excessive cases. An individual who disposed of the individual’s sole residence in 2016 may have neglected to report it due to lack of familiarity with the new rules or simply did not advise the individual’s accountant of the sale.

  1. In such cases, must the individual now amend the individual’s 2016 income tax return in order to provide the particulars requested on page 2 of Schedule 3?
  2. If an amendment is required, will no penalty be imposed for the late making of the principal residence designation respecting a 2016 disposition where this is not a serious case?

CRA responded:

[F]or the 2016 and subsequent years, ... taxpayers who have failed to report the disposition of their principal residence [are required to] amend their income tax return … .

For the sale of a residence in 2016, Schedule 3 … must be completed, on which must be stated the year of disposition of the property, its proceeds of disposition as well as its description. … Form T2091 … (or Form T1255 …), is required for the designation if the property was not the taxpayer's principal residence for all the years in which the taxpayer was the owner.

For dispositions in 2017 and subsequent years … taxpayers will also be required to complete Form T2091 (IND) (or Form T1255). If the sold property was the taxpayer's principal residence for all years, or for all but one year, while the taxpayer was its owner, the taxpayer is only required to complete the first page of Form T2091 (IND) (or Form T1255).

[T]he administrative practice stated on the CRA's website, allowing the reduction of the penalty for late-filing a principal residence designation, except in the most excessive cases, has been extended to dispositions that occurred in the 2017 taxation year.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 40 - Subsection 40(2) - Paragraph 40(2)(b) description of filing requirements 61

6 October 2017 APFF Roundtable Q. 3, 2017-0709011C6 F - Désignation d’un bien comme résidence principale

an individual accessing the “+1” rule on a principal residence disposition need not complete Form 2091

On page 2 of Schedule 3 of the return for the year of disposition of a principal residence, the individual checks the box for Case 1. By virtue of this effectively being a designation for all the years during which the taxpayer was owner, this could result in wasting the extra year under the “+1” computation.

  1. Is CRA prepared to treat this as a designation for all the years of holding minus one (for example, 2017 being the year of sale)?
  2. What evidence must the individual maintain for the event that there is a disposition of a second property that could be designated as a principal residence for 2017?

CRA responded:

Where a taxpayer owns only one property and designates it as his or her principal residence for all years in which he or she owned the property, the taxpayer must check Box 1.

Where an individual sells the only principal residence owned by the individual (House A) and acquires a new principal residence in the same year (House B), the CRA is of the view that Box 1 may be checked to designate House A as the individual’s principal residence for all years (or for all years less one year). In this situation, the CRA will not require Form T20911 to be completed with the individuals’ income tax return for the year. …

A written copy of the individual’s election should be retained for future reference… .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 40 - Subsection 40(2) - Paragraph 40(2)(b) no loss of bonus year if standard designation 90
Tax Topics - Income Tax Act - Section 40 - Subsection 40(2) - Paragraph 40(2)(b) no loss of bonus year if standard designation

Paragraph (c.1)

Administrative Policy

21 November 2017 CTF Roundtable Q. 2, 2017-0724121C6 - Trusts and principal residence

right to use property of life interest housing trust would not be a right to use the house as a residence

The 2016 NWMM introduced proposed s. (c.1)(iii.1)(A)(III) of the definition of principal residence which provided that in order for a property acquired by a life interest trust to qualify as a principal residence, the terms of the trust had to provide the specified beneficiary with “a right to the use and enjoyment of the housing unit as a residence throughout the period in the year that the trust owns the property.” After noting that s. (c.1)(iii.1) was dropped from the final Bill C-63 amendments, CRA nonetheless went on to answer the now-hypothetical question of the effect of a clause in the trust deed providing that “no one other than the life interest beneficiary has the right to use any of the trust property,” stating:

Trust terms that provide that no one other than the specified beneficiary has the right to use and enjoy the property of the trust would have fallen short of specifically meeting the key requirement in the 2016 NWMM that the specified beneficiary must have the right to use the housing unit owned by the trust as a residence.

9 September 2013 External T.I. 2012-0464321E5 - Application of subsections 107(2) and 107(2.01)

specified and non-specified beneficiaries

A personal trust holds a principal residence of a specified beneficiary (as defined in subpara. (c.1)(ii) of the "principal residence" definition in s. 54), and has several other beneficiaries who are not specified beneficiaries.

If the trust distributes the principal residence to all the beneficiaries equally and makes a s. 107(2.01) designation, the designation will not be invalidated because the other beneficiaries are not specified beneficiaries (as only one such beneficiary is required). Respecting the reference in s. 107(2.01) to a distribution "by the trust to the taxpayer," the singular includes the plural.

If no election is made, then each beneficiary claiming the principal residence exemption must, in his or her own right, satisfy the requirements of ss. 40(2)(b) and (c), although s. 40(7) will deem a residence acquired by a beneficiary in satisfaction of a part of a capital interest in the trust to have been owned continuously since the trust last acquired it.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 107 - Subsection 107(2.01) specified and non-specified beneficiaries 152

5 October 2012 Roundtable, 2012-0453941C6 F - Principal residence owned by a trust-exemption

status based on s. 248(25) application and actual habitation

Who are the specified beneficiaries in the following situations?

Situation 1. A principal residence is held by a personal trust whose beneficiaries are the parents and their children. The parents live in the residence and the children each have a different principal residence.

Situation 2. Same situation as above, but this time only one of the children lives in the residence.

Situation 3. A principal residence is held by a personal trust whose sole beneficiaries are the children. One of the children lives in the residence. The parents have a different principal residence, as do the other children.

CRA indicated that if the only persons beneficially interested (as defined in s. 248(25)) in the trust are those listed in the above descriptions the specified beneficiaries would be:

  • in Situation 1, the parents.
  • in Situation 2, the parents and the child who ordinarily inhabited the residence.
  • in Situation 3, the child who ordinarily inhabited the residence.
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 54 - Principal Residence - Paragraph (f) renunciation by specified beneficiaries immediately before sale would not affect para. (f) exclusion 138

Paragraph (d)


Haber v. The Queen, 83 DTC 5004, [1982] CTC 405 (FCTD)

The statutory language does not permit an individual to designate 2 housing units as principal residences of the individual for the year.

Paragraph (e)


Cassidy v. Canada, 2011 FCA 271

The taxpayer sold his six-acre rural property after it was rezoned for residential use as a result of an application made on behalf of owners of adjacent properties. He claimed a principal residence exemption on the entire gain. The Tax Court restricted the exemption to a half-hectare of the property contiguous with the house on the basis that the determination under paragraph (e) of the definition of "principal residence" is to be made at the time the property is sold, and at that time the property had been rezoned and could be subdivided. Therefore, the entire six acres were no longer necessary to the use and enjoyment of the residence.

The Court of Appeal granted the taxpayer's appeal. Sharlow J.A. stated (at para. 35):

The error in the interpretation of paragraph 40(2)(b) proposed by the Crown, and perhaps implicit in Joyner, is that it fails to give effect to the language of paragraph 40(2)(b) that defines variable B. As mentioned above, the determination of variable B requires a determination, for each taxation year in which the taxpayer owned the property in issue, as to whether the property met the definition of "principal residence" of the taxpayer for that taxation year.

Given that the rezoning and the sale both occurred in 2003, and in light of the "plus one" component of B, the taxpayer was entitled to the principal residence exemption on the entire gain.

Administrative Policy

11 October 2012 External T.I. 2012-0433681E5 F - Résidence principale terrain adjacent

adjacent land not included in principal residence if owned by spouse, not by taxpayer

Monsieur owns land on which a house is built. This house is ordinarily inhabited by Monsieur and Madame. Madame owns the contiguous land that is used for the personal purposes of the couple and on which there is no housing unit. CRA stated:

[F]or a principal residence to be deemed to include the contiguous land, the person or persons owning the housing unit must also own the land.

…For this reason, Madame's land cannot qualify as a principal residence.

10 June 2016 External T.I. 2015-0590371E5 F - Résidence principale - stationnement

a parking space can form part of a condo housing unit

An individual (the "Condo Owner") acquired one or more parking spaces as part of the acquisition of a condo unit (the “Unit,”), which is used as a personal residence. Would the principal residence exemption be available on the sale of such a “Parking Space,” for example, on a sale of the Parking Space, but not the Unit, to another condo owner? After noting that the Parking Space by itself did not qualify as a principal residence, CRA stated (TaxInterpretations translation):

[A] Parking Space that facilitates the use of the housing unit is part of the housing unit for the purposes of the definition of "principal residence"… .

[W]e [also] would require that the Parking Space be part of the private area or common area of the building that includes the Unit, all in accordance with the Declaration of Condo Ownership for the building. The Unit and the Parking space must be owned by the same person. …

[T]he mere fact that a Condo Owner sells only a Parking Space to another condo owner does not automatically preclude the Parking Space, which is a component of the housing unit, from qualifying. …

[T]he "principal residence" designation relates to the Unit. Consequently, when a condo owner eventually disposes of the Unit, it would also be recognized as a the "principal residence" for the taxation years for which the designation…was made.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 40 - Subsection 40(2) - Paragraph 40(2)(b) designating condo parking space for a year does not exhaust exemption for the condo unit 158

23 January 2012 External T.I. 2011-0409671E5 F - Propriété superficiaire

land leased to corporation for business use not part of principal residence

Corporation A erected, at its expense and for exclusive use in its transport business, a detached garage on the land on which the principal residence of its individual shareholder (the “Taxpayer”) is located. The land subjacent to the garage is leased to it by the Taxpayer. In indicating that the leased land would not be part of the Taxpayer’s principal residence, CRA stated:

[I]t would be unreasonable to consider the land subjacent to the garage as contributing to the use of the housing unit as the principal residence of the Taxpayer, from the time the garage is used exclusively for the purposes of the business of Corporation A.

CRA went on to note that as a result of a deemed disposition under s. 45(1)(c) effective the commencement of the business use, there would on that basis as well be an exclusion of such land from the Taxpayer’s principal residence.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1) benefit if building constructed at corporation’s expense for business purposes becomes shareholder’s property by accession 148
Tax Topics - Income Tax Regulations - Regulation 1102 - Subsection 1102(1) - Paragraph 1102(1)(c) individual shareholder not entitled to claim CCA on building constructed by the corporation for use in its business even if where taxpayer owns it 154
Tax Topics - General Concepts - Ownership whether tenant had Quebec right of superficies to garage erected by it determined whether it was its property 89
Tax Topics - Income Tax Act - Section 13 - Subsection 13(21) - Depreciable Property building erected by corporation on shareholder’s land not depreciable property unless shareholder renounces right of accession 213

8 December 2011 External T.I. 2011-0421051E5 - Principal residence - Bed and Breakfast

In providing a brief review on whether operating a bed & breakfast (B&B) on a property would make the principal residence exemption unavailable on that property, CRA indicated (referring to para. 32 of IT-120R6) that "whether use of a portion of the property as a B&B operation is ancillary to the main use of the property as the taxpayer's principal residence are ultimately questions of fact."

30 September 2011 Internal T.I. 2011-038789 -

CRA reviewed the state of jurisprudence on paragraph (e) of the principal residence definition, and indicated that a piece of land larger than a half-hectare will generally not be necessary for the use and enjoyment of a housing unit as a residence if the land can be subdivided in a manner that moves towards the "highest and best use" of the land, as defined in The Canadian Uniform Standards of Professional Appraisal Practice. CRA stated: "an appropriate test is a probability of subdivision which is greater than 50% after considering the interaction of four criteria: legal permissibility [e.g. zoning bylaws], physical possibility, financial feasibility, and maximum profitability."

Paragraph (f)

Administrative Policy

5 October 2012 Roundtable, 2012-0453941C6 F - Principal residence owned by a trust-exemption

renunciation by specified beneficiaries immediately before sale would not affect para. (f) exclusion

Could specified beneficiaries renounce their beneficial interest in the trust immediately prior to the sale and thus not be affected by the exemption claimed by the trust? CRA responded:

[I]f a personal trust designates a residence as a principal residence for a particular year, it is the specified beneficiaries in the calendar year ending in the particular year that will be affected by paragraph (f) of the Definition and who will have the consequences for that calendar year ending in the year.

Consequently, a (legally valid) renunciation by certain beneficiaries in respect of their beneficiary rights in the trust that would be made immediately prior to the sale of the residence by the personal trust and that would be effective only from that time would not avoid the consequences provided for in paragraph (f) of the Definition.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 54 - Principal Residence - Paragraph (c.1) status based on s. 248(25) application and actual habitation 148