3 July 2003 External T.I. 2003-0019555 - PERSONAL - USE PROPERTY

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

DOCUMENT TYPE: Opinion

Principal Issues: Whether a particular property would be considered a "personal-use property" as that term is defined in section 54 of the Act.

Position: Question of fact.

Reasons: Where a taxpayer disposes of a particular property, the question that must be answered is whether the property was used primarily for the personal use or enjoyment of the taxpayer or persons related to the taxpayer during the period of ownership before the sale.

XXXXXXXXXX 2003-001955
Karen Power, CA
(613) 957-8953
July 3, 2003

Dear XXXXXXXXXX:

Re: "Personal-Use Property"

We are writing in reply to your letter of April 18, 2003, wherein you requested our comments on whether a particular property would be considered a "personal-use property" as that term is defined in section 54 of the Income Tax Act (the "Act").

You describe the following situation:

1. In XXXXXXXXXX, Mrs. X purchased a new home (the "Property") at a cost of $XXXXXXXXXX. Mrs. X immediately gifted a 50% interest in the Property to XXXXXXXXXX, Mr. A for no consideration. Mrs. X and Mr. A were registered as joint owners of the Property.

2. The above noted transfer was undertaken for estate planning purposes. From XXXXXXXXXX to XXXXXXXXXX, Mrs. X resided alone at the Property, she did not pay any rent to Mr. A and was responsible for all expenses related to the Property.

3. Mrs. X passed away in XXXXXXXXXX, the fair market value of the Property at this time was estimated to be $XXXXXXXXXX. Upon Mrs. X's death, Mr. A inherited the remaining 50% interest in the Property.

4. Mr. A never occupied the Property, nor did he ever rent it out to anyone. The Property was sold in XXXXXXXXXX.

You enquire whether the Property upon disposition in XXXXXXXXXX, would be considered a personal use property.

Our comments

The situation that is described in your letter appears to involve completed transactions involving specific taxpayers. Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular IC-70-6R5 dated May 17, 2002. Where the particular transaction is completed, the inquiry should be addressed to the relevant Tax Services Office. We can, however, provide the following general comments.

It is generally our view that the transfer of property solely owned by a person into a joint tenancy arrangement between that person and another person would result in a disposition pursuant to subsection 248(1) of the Act of 50% of that person's interest in the entire property, unless the transfer did not result in a change in beneficial ownership (in which case a true joint tenancy arrangement would not exist). The concepts of "beneficial ownership" and "legal ownership" as recognized under the common law jurisdictions are discussed in interpretation bulletin IT-437R. It is a question of fact, in the situation you describe, whether there was a change in the beneficial ownership of the Property in XXXXXXXXXX. We have assumed for the purpose of our remaining comments that the XXXXXXXXXX transfer resulted in a disposition for purposes of the Act, consequently Mr. A has owned an interest in the Property since XXXXXXXXXX.

The question of whether a property is a "personal-use property" and therefore whether a loss on the disposition of the property is denied pursuant to subparagraph 40(2)(g)(iii) of the Act is also one of fact. Pursuant to subparagraphs (a)(i) and (ii) of the definition of "personal-use property" in section 54 of the Act, "personal-use property" of a taxpayer includes property owned by the taxpayer that is used primarily for the personal use or enjoyment of the taxpayer or for the personal use or enjoyment of one or more individuals each of whom is the taxpayer or a person related to the taxpayer.

Accordingly, where a taxpayer disposes of a particular property, the question that must be answered is whether the property was used primarily for the personal use or enjoyment of the taxpayer or persons related to the taxpayer during the period of ownership before the sale. In the situation you describe, it is our view that the Property was not acquired (in XXXXXXXXXX and XXXXXXXXXX) for the purpose of gaining or producing income from property. In addition, the Property was used primarily for the enjoyment of Mrs. X from XXXXXXXXXX to XXXXXXXXXX; consequently upon disposition the Property would be considered "personal-use property" of Mr. A, since Mrs. X and Mr. A are related by virtue of paragraph 251(2)(a) of the Act.

We trust our comments will be of assistance to you.

Milled Azzi, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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