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:
Where a capital gains election in respect of excess land on which a principal residence is situated has been filed (for protective reasons) and it is later determined that the entire property is eligible for the principal residence exemption, will the election affect the taxpayers ability to claim the principal residence exemption on the entire property at the time of disposition.
Position TAKEN:
If at the time of disposition, the entire property qualifies as a principal residence, the filing of the capital gains election on the excess land (land in excess of 1 acre) will not prejudice the claim. However, whether or not land in excess of 1 acre can be considered necessary to the use and enjoyment of the housing unit as a residence is a question of fact. The fact that the taxpayer chose to make the capital gains election in respect of the excess land may be a factor in determining whether it qualifies as part of the principal residence if there is some question as to the status of the excess land.
Reasons FOR POSITION TAKEN:
The presence or absence of a capital gains election in respect of a property that includes excess land is significant only in that it may indicate the individual's own opinion as to the land's status.
Previous Corespondence 943096, 952133, 952284
951468
XXXXXXXXXX D. Zion
Attention: XXXXXXXXXX
September 13, 1995
Dear Sirs:
Re: Capital Gains Election - Principal Residence
We are writing in response to your letter of May 26, 1995, regarding a capital gains election and its possible effect on the subsequent principal residence exemption claim upon disposition of the property. We apologize for the delay in replying.
The situation, as we understand it, is as follows:
1)Mr. A owns a principal residence which is located on a 10-acre property.
2)The minimum lot size for the property is 10 acres. You have not provided any further information or documentation regarding this assumption.
3)The entire 10-acre property upon which the residence is located is eligible for the principal residence exemption on the basis that the entire property is "necessary for the use and enjoyment of the property".
4)In spite of item 3, Mr. A, for greater certainty, elected to trigger a capital gain as at February 22, 1994 with respect to 9 acres of the 10-acre property.
Based on the above scenario, we are to assume that Mr. A sells the entire property in 1999, at which time he is confident that the entire 10 acres is eligible for the principal residence exemption. You have asked us whether or not the 1994 capital gains election (item 4) will affect Mr. A's ability to claim a principal residence exemption for all years from the date of purchase to the date of disposition on the entire 10-acre property.
You have indicated that in the scenario under review, Mr. A elected to file a capital gains election in order to trigger a capital gain as at February 22, 1994 in respect of the excess land (nine acres). We would like to bring to your attention that it is the Department's view that if a property owned at the end of February 22, 1994 includes both the housing unit and land in excess of 1/2 hectare (the excess land) and the taxpayer could not have in fact disposed of the excess land separately from the housing unit, the capital gains election should have been filed in respect of the entire property, including the excess land. The Department will treat the capital gains election as if it had been filed as such.
The filing of a protective capital gains election will not in and of itself prejudice a claim that the entire property qualifies as a principal residence, if, on the facts of a particular case, excess land is part of a principal residence. A determination of how much land can be considered part of a principal residence in any particular case, based on a review of all the relevant facts and documentation, is normally the responsibility of the Tax Services office serving the area in which the client resides. The Department's position in this respect is explained in Interpretation Bulletin IT-120R4, Principal Residence.
The presence or absence of a capital gains election in respect of a property that includes excess land is significant only in that it may indicate the individual's own opinion as to the land's status, particularly if electing on the property involves a tax cost of some kind. For instance, if an individual had no other capital assets that were eligible for the capital gains deduction, and suffered no immediate adverse tax consequences from making the election, its presence would not be significant evidence of the individual's opinion. On the other hand, an individual might elect on the property, including the excess land, instead of on shares of public companies that had significant unrealized gains. In that case, one could reasonably assume that in the opinion of that individual, the land was not likely to qualify as part of the principal residence. The Department would see this use of the election as quite a significant indicator. In addition, if the election had other immediate adverse tax consequences such as an effect on personal tax credits, it would be an indication that the individual had considered the election necessary.
These comments represent our opinions of the law as it applies generally. As indicated in paragraph 21 of Information Circular 70-6R2 dated September 28, 1991, these opinions do not constitute an advance income tax ruling and are not binding on the Department.
We trust our comments will be of assistance to you.
Yours truly,
P.D. Fuoco
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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