Cases
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, [1995] 2 CTC 273 (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, [1993] 2 CTC 34 (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".
Fourt v. The Queen, 91 DTC 5631, [1991] 2 CTC 311 (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, [1991] 1 CTC 271 (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).
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Statutory Interpretation - Similar Statutes/ in pari materia | expropriation and tax legislation not in pari materia | 38 |
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.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition | 61 | |
| Tax Topics - Income Tax Act - Section 44 - Subsection 44(1) | 36 | |
| Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Real Estate | farm activity kept separate from trading activity | 124 |
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.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 40 - Subsection 40(2) - Paragraph 40(2)(b) | 43 |
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 | 93 |
See Also
Salama v. Agence du revenu du Québec, 2022 QCCQ 718
After her divorce in 1998, the taxpayer (along with her young son) moved back to live with her mother in the house she had grown up in. It consisted principally of two floors with separate municipal addresses and tax bills (but connected by a staircase within an external vestibule) and which could have functioned as separate residences (e.g., their own kitchens and bathrooms) but in fact, although she (and usually her son) slept on the second floor and had breakfast there, they took their other meals (cooked by her mother) on the ground floor (where her mother slept), and also received friends there.
The house was gifted to her by her mother in 2003, and she sold it in 2016. After reviewing federal and Quebec cases on when a duplex might constitute a single housing unit, Davignon JCQ stated (at paras. 77-78, TaxInterpretations translation):
[T]he courts have generally interpreted "housing unit" as it appears in the definition of principal residence in the QTA as being a self-contained living space, including all the amenities normally associated with it, namely a sleeping area, a kitchen and a bathroom. With this in mind, they have generally held that only one separate self-contained dwelling unit in the same building can come within this definition.
… [D]espite the usual meaning associated with the expression "housing unit", it should not be construed as preventing a person from benefiting from the full tax exemption respecting a capital gain realized on the disposition of a building that includes more than one unit, if in fact the individual has lived in the entire building.
Before finding that all of the gain (rather than only half in the view of the ARQ) was exempted, he stated (at paras. 88-90):
Mrs. Salama's daily life was not separated from that of her mother and in fact, she lived in the entire building. For all practical purposes, she ate all her meals with her mother and son on the first floor. The three of them lived together and even when she or her son had friends over, it was no different. … Her bedroom was upstairs and the bathroom that she mainly used also was upstairs.
The two floors were connected by two staircases … . [T]he only difference from another two-storey single-family home was that the building had two kitchens, one on each level, and was originally divided so that it housed two units. …
… Why should it be necessary to demolish the kitchen on the first floor, and why should the building have only one kitchen, so that it could qualify as a principal residence?
Denis v. Agence du revenu du Québec, 2019 QCCQ 6708
The taxpayer sold a triplex in 2011 at a gain, which he reported as being fully exempt under the Quebec principal residence exemption. The basement unit (“9090”), which was accepted as representing 54% of the triplex, had been occupied by him for use as his residence and a home office since his purchase of the triplex in 2002. The two upper units (9092 and 9094, each representing 23% of the triplex), had been rented out by him to third parties until 2007, but he took the position that thereafter they represented personal use property of the taxpayer – although, for 14 months, he rented out one of the units to a friend at his stated cost of $400 per month - and, with the stated objective of improving the salability of the triplex, in 2011 he announced that 9094 was available for rent and leased it shortly before the sale of the triplex. The ARQ reassessed on the basis that only the portion of the capital gain allocated by it to 9090 (54%) was eligible for the principal residence exemption.
In affirming the ARQ position, Breault JCQ stated (at paras. 57, 68-69, TaxInterpretations translation):
[I]n order for two housing dwellings or units in the same immovable to be considered a single housing unit for the purposes of TA section 274 (or ITA 54), they must be sufficiently integrated, one with the other, such that the owner can benefit from full enjoyment of the entirety. Each must not be a distinct and autonomous unit; each must instead complement the other and lose to some extent its separate identity for the benefit of the whole. …
[N]o transformation or modification of much significance was made to the Triplex in order for the three units to be linked in some manner to each other. …
The units preserved their distinct character… . Each continued to have its own access door.
In addition, the absence of a profit element in the rental at $400 per month had not been established, and furthermore, if this were relevant (para. 71):
[T]his element (the presence or absence of profit) is not a determinative criterion in this case. It is sufficient to note that the unit or property generated revenue to conclude that it was used for the purposes of producing rental income.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 45 - Subsection 45(1) - Paragraph 45(1)(a) - Subparagraph 45(1)(a)(ii) | taxapyer could not treat alleged prior change of use as stepping up basis | 303 |
Palardy v. The Queen, 2011 DTC 1188 [at 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.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) - Paragraph 152(4)(a) - Subparagraph 152(4)(a)(i) | income account treatment in "grey zone" | 133 |
| Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Real Estate | 122 |
Boulet v. The Queen, 2010 DTC 1015 [at 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.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - General Concepts - Fair Market Value - Land | binding NAL agreement suppressed land's FMV | 217 |
| 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 | 356 |
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".
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) - Paragraph 152(4)(a) - Subparagraph 152(4)(a)(i) | didn't inform return preparer of gain | 56 |
| Tax Topics - Income Tax Act - Section 45 - Subsection 45(1) - Paragraph 45(1)(a) | must be unequivocal inconsistent use | 120 |
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."
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 54 - Proceeds of Disposition | 164 |
Low v. The Queen, 93 DTC 927, [1993] 2 CTC 2227 (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 | 59 |
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, [1989] 2 CTC 2395 (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
15 July 2024 External T.I. 2023-0990221E5 - Principal Residence Exemption-Condo parking Spaces
A taxpayer acquired a condominium unit and one parking space (the “First Parking Space”) in 2017 for personal use, then acquired a second parking space (the “Second Parking Space”) on separate title in 2020 in the same building complex for personal use. The First Parking Space was sold along with the condo and subsequently the Second Parking Space was sold separately. In finding that a portion of, or all of, the gain realized on the disposition of the parking spaces may be exempt pursuant to s. 40(2)(b), CRA stated:
[A] facility, such as a parking space, may be a component of a housing unit provided that facility can reasonably be regarded as contributing to the use and enjoyment of the housing unit as a residence for individuals.
… [I]t is our view that the First Parking Space is a component of the housing unit (i.e., the Condo). In addition, the fact that the Second Parking Space is on separate title and sold to a different purchaser from the Condo would not in and of itself preclude the second parking space from being included as a component of the housing unit. Furthermore, because the Second Parking Space is on separate title from the Condo, it is our view that the Condo and parking spaces must be owned by the same person to be considered as a component of the housing unit.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 40 - Subsection 40(2) - Paragraph 40(2)(b) | principal residence exemption could apply to sale of 2 condo parking spots | 193 |
10 October 2024 APFF Financial Strategies and Instruments Roundtable Q. 9, 2024-1015481C6 F - Crédit d'impôt pour la rénovation d'habitations multigénérationnelles et exemption pour résidence principale
An individual incurs qualifying renovation expenditures to create a secondary unit (Unit B) to house a qualifying individual. When the work is completed in 2024, the secondary unit represents 20% of the area of the entire building (consisting of Unit A, occupied by the individual, and Unit B, occupied by the qualifying individual). Will 100% of the building still qualify for the principal residence exemption?
CRA indicated:
An immovable is normally considered to be a single property unless it is legally subdivided into two or more separate properties. An immovable may nevertheless include one or more housing units for the purposes of the principal residence exemption.
Since Unit B was a secondary dwelling unit that was ordinarily inhabited separately from Unit A, the taxpayer could only designate one of the two units as a principal residence, provided that the other conditions were met.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 122.92 - Subsection 122.92(1) - Qualifying Relation | qualifying relation does not extend to the spouse of a nephew or niece | 72 |
| Tax Topics - Income Tax Act - Section 252 - Subsection 252(2) - Paragraph 252(2)(g) | s. 252(2)(g) does not extend to the spouse or common-law partner of a niece or nephew | 32 |
| Tax Topics - Income Tax Act - Section 122.92 - Subsection 122.92(1) - Eligible Individual | credit is not lost if secondary unit is then sold to its qualifying occupants | 159 |
27 June 2024 External T.I. 2023-1000391E5 - BC Secondary Suite Incentive Program
The BC Secondary Suite Incentive Program assists qualifying homeowners to create a new secondary suite or accessory dwelling unit (a “Secondary Suite”) on the property of their principal residence, by providing a forgivable loan in the amount of 50% of the Secondary Suite’s construction costs, subject to a maximum loan amount. It must be rented at no more than a rent affordability limit for at least five years to a tenant who is not an immediate family member, and the loan amount will be forgiven over five years if all of the program requirements are satisfied.
The findings of CRA included:
- The Stewart test likely suggests that (even with the below-market rents), the Secondary Suites constitute a source of income, being property income, notwithstanding any generation of a loss.
- The creation of a Secondary Suite, either within or detached from the homeowner’s home, generally would trigger a deemed disposition pertaining to the converted portion, pursuant to s. 45(1)(c)(ii).
- However, the homeowner could make an election pursuant to s. 45(2) to defer the recognition of any resulting gain to a later taxation year.
- For principal residence exemption purposes, the Secondary Suite, and the balance, would be treated as two distinct housing units (essentially because each could be ordinarily inhabited separate from the other) so that the principal residence exemption for any particular year could only be claimed for one of the two units, as also discussed below.
- Although the ordinarily-inhabited condition under the principal residence definition would not generally be met for the Secondary Suite while being rented to third parties, where it was subject to the s. 45(2) election it could nonetheless qualify as the taxpayer’s principal residence for up to four taxation years during which the election remained in effect – so that the homeowner would be able to choose for such a year to designate the Secondary Suite rather than the balance of the property as that taxpayer’s principal residence.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) | rental program requiring rent at no more than an affordability limit could correspond with a source of income | 185 |
| Tax Topics - Income Tax Act - Section 54 - Adjusted Cost Base | forgivable loan could be cost reduction based on well-accepted business principles | 218 |
| Tax Topics - Income Tax Act - Section 13 - Subsection 13(7.1) | application of s. 13(7.1) or 53(2)(k), and exclusion of s. 12(1)(x), re BC government forgivable loan for construction of secondary suite | 153 |
| Tax Topics - Income Tax Act - Section 45 - Subsection 45(1) - Paragraph 45(1)(c) - Subparagraph 45(1)(c)(ii) | conversion of part of home to a secondary suite for rental would engage s. 45(1)(c)(ii) | 135 |
| Tax Topics - Income Tax Act - Section 45 - Subsection 45(2) | s. 45(2) would permit claiming principal residence exemption for disposition of secondary suite rather than balance of home | 396 |
11 October 2019 APFF Roundtable Q. 2, 2019-0812611C6 F - Résiliation d'un bail - Lease cancellation
A tenant had been annually renewing a lease of a personal-use condo since the time the condo was first leased in July 2013. The condo was sold in February 2019. In order to be able to move in right away, the new owner paid $15,000 to the tenant for early termination of the lease. CRA considered it likely that the tenant continued to have a (single) residential leasehold interest throughout the period since July 2013, so that the $15,000 qualified for the principal residence exemption, i.e., it was consideration for the disposition of the leasehold interest (used as a principal residence) that the tenant had acquired in 2013 and held since then to the time of the lease termination.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(z) | s. 20(1)(z) applies notwithstanding s. 18(1)(a) but is subject to source rule in s. 20(1) preamble | 193 |
| Tax Topics - Income Tax Act - Section 40 - Subsection 40(2) - Paragraph 40(2)(b) | lease termination payment received by tenant was referable to complete period of holding of (annually renewed) leasehold interest | 245 |
| Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) | s. 20(1)-preamble source rule applied | 148 |
21 June 2017 External T.I. 2017-0687961E5 - Principal residence exemption and farm property
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 | 116 |
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 portion 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
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 | 249 |
| 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 | 409 |
21 January 2016 Ordre des CPA du Québec Personal Taxation Roundtable Q. 9, 2016-0625141C6 F - Principal residence - duplex
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.
4 March 2015 Internal T.I. 2015-0567791I7 F - Exemption résidence principale louée à un enfant
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
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
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 | 71 |
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(3) | effective grandfathering of right as usufructuary which arose before 1991 | 165 |
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 www.cra-arc.gc.ca/tx/bsnss/thrtpcs/nt-ft/q1-eng.html.
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.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 45 - Subsection 45(2) | 147 |
5 November 2012 External T.I. 2012-0445241E5 F - 54 et 40(2)b)
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 … .
28 September 2010 External T.I. 2010-0375501E5 F - Triplex - Résidence principale
In confirming that a unit in a triplex can qualify as a principal residence, CRA stated:
Where the units in a triplex are separate units, it is generally our view that each of the units is an independent housing unit for purposes of the definition of principal residence in section 54.
A taxpayer who is an undivided co-owner of a triplex could therefore designate the unit in the triplex that was ordinarily inhabited by the taxpayer as the taxpayer’s principal residence if all the conditions of the definition of principal residence in section 54 were otherwise satisfied.
23 September 2010 External T.I. 2010-0364711E5 F - Résidence principale
The taxpayer acquired a residence that included a small unit in the basement with an independent exit, kitchenette, washer/dryer entrance and separate municipal address, which initially was rented to a third party, but then was rented to the son of the taxpayer’s spouse (who under s. 252 was deemed to be the taxpayer’s child). No CCA was claimed. Before finding that this unit was a separate housing unit, so that the taxpayer had to choose which of the two units would be designated as the taxpayer’s principal residence, CRA stated:
[T]he fact that there are two different municipal addresses may lead us to conclude that there are two housing units. Other elements may also come into play, such as the existence of independent entrances, separate heating systems, separate hot water tanks and a tax account with several municipal addresses. The legal nature of the property is also a factor ... . In this regard ... there are certain municipal by-laws ... that allow a residence to retain the character of a single-family dwelling while providing a housing unit for a family member.
8 January 2010 External T.I. 2009-0344061E5 F - Crédit d'impôt pour la rénovation domiciliaire
After noting that a residence held by a partnership could qualify as an "eligible dwelling" of a partner for home renovation tax credit ("HRTC"), so that it could generate a credit if ordinarily inhabited by the partner (or spouse etc. thereof) who incurred the qualifying expenditures, CRA went on to note in its summary that it has a similar position for partnerships with respect to the principal residence exemption.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 118.04 - Subsection 118.04(1) - Eligible Dwelling - Paragraph (a) | residence of a partnership, but not a corporation, can be an eligible dwelling | 56 |
| Tax Topics - General Concepts - Ownership | partner is “owner” of partnership property for principal residence exemption purposes | 30 |
27 May 2009 Internal T.I. 2009-0310751I7 F - Usufruit d'un immeuble avant 1991
CRA indicated that since a usufruct regarding a principal residence was created prior to 1991 (i.e., prior to the amendment of s. 248(3)), the usufructuary was considered to continue as the beneficial owner, including for the purposes of applying the principal residence exemption on his death in 2007.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(3) | re a usufruct created prior to 1991, the usufructuary was considered to continue as the beneficial owner | 195 |
8 November 2005 External T.I. 2005-0148091E5 F - Résidence principale-deux unités de condominium
A couple purchased a condo beneath the one they had been occupying as their home and did work to connect the two units by interior staircase. Before finding that the two units did not constitute a single housing unit for purposes of the principal residence exemption, CRA stated:
[I]t is clear that the two units must be sufficiently integrated - and to do so, have undergone major work - for the use of and access to one of the units to be a condition of the full enjoyment of the other unit. Thus, if each unit can be ordinarily inhabited without access being provided to the other unit, (for example, each unit has a kitchen and a bathroom and both have separate access) it will be difficult to consider the two units to be a single housing unit within the meaning of section 54.
On the other hand, if one unit has all the bedrooms and the other unit consists primarily of the kitchen and bathrooms and they are truly used as one unit, the CRA may be more likely to conclude that there is a single unit for purposes of the definition of "principal residence" … .
Although units A and B are connected by an interior staircase, it appears that the layout of the two units has not been altered significantly enough to be considered a single unit. Furthermore, the fact that the two units have retained their respective civic addresses and continue to be subject to separate property tax and electricity accounts seems to support the validity of our position.
17 February 2005 External T.I. 2004-0091811E5 F - Exemption pour résidence principale
A single taxpayer (Mr. A) has been living in the basement of a residence acquired by him, with his mother (Ms. B) living on the ground floor without paying rent to her son for her use of half of the residence's living space. Regarding whether this was one housing unit or two, CRA stated:
The fact that there are two different municipal addresses is an indication that there are two housing units. However, other elements may also be taken into account, such as independent entrances, separate heating systems, separate hot water tanks, a tax account with several municipal addresses, etc. The legal nature of the property is also an element to be considered when determining the number of housing units in the residence.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 54 - Principal Residence - Paragraph (a) | where residence held by son and mother in equal co-ownership is 2 units each occupied separately, each could technically access the exemption for only a ¼ interest | 239 |
6 February 1996 External T.I. 9529455 - 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 Internal T.I. 9509607 - PRINCIPAL RESIDENCE EXEMPTION AND CAPTIAL 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.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Statutory Interpretation - Interpretation Act - Subsection 33(2) | provision contemplates only singular | 39 |
7 March 1995 External T.I. 9500305 - 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 Internal T.I. 9502557 - 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 External T.I. 9405815 - 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 External T.I. 9334535 - PRINCIPAL RES 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 External T.I. 9321975 F - 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.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Small Business Corporation | 89 |
Articles
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
Royer v. Agence du revenu du Québec, 2019 QCCQ 4163
The taxpayers (a couple) were the equal co-owners of a house where they lived with their daughter and their disabled son. In order that the son’s grandmother could stay there so as to take care of their son on a full time basis, their construction (in 2007) of the house included a basement apartment (with kitchen, bathroom and laundry room, and separate door to the exterior as well as stairs to the ground floor, and taking up a portion of the basement) that was occupied by her. In 2011, they sold the house, at a gain. At issue as to the availability of the principal residence exemption was the requirement in the Taxation Act s. 274 that “the housing unit is ordinarily inhabited in the year by the individual, his spouse or former spouse or his child.”
After Boutin JCQ characterized the residence as a duplex, and after noting that although the grandmother regularly used the common areas of the first floor, the evidence of the reverse, namely, the use of the rest of the family of the grandmother’s apartment was “tenuous” (para. 53), he stated (para. 54, TaxInterpretations translation):
It was not the “personal” character of the use, by the grandmother, of part of the basement which must be taken into account but rather the use, by the persons referred to in TA section 274, of the totality of the property’s rooms, including the portion of the basement consisting of the rooms allocated to the grandmother. The Court, for example, has difficulty imagining the room of the latter was “ordinarily inhabited” by the members of the family of the plaintiffs.
The ARQ assessments of capital gains without the benefit of the principal residence exemption were confirmed.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Disposition - Paragraph (a) | sale of property for a stipulated sale price was a disposition notwithstanding usufruct grant by purchaser | 263 |
Dusablon v. Agence du revenu du Québec, 2018 QCCQ 3032
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
1 February 2024 External T.I. 2023-0993691E5 - Principal Residence Exemption
An individual and her husband, both Canadian residents, did not travel in 2020 and 2021 to the country where the individual’s townhouse was located due to COVID-19 travel restrictions. The townhouse was not inhabited during those two years. Could the principal residence exemption be claimed for those years following its sale in 2023?
After noting that property located outside Canada can potentially qualify as a taxpayer’s principal residence, and that “[e]ven if a person inhabits a housing unit only for a short period of time in the year, this may be sufficient for the housing unit to be considered ordinarily inhabited in the year by that person,” CRA stated:
Notwithstanding that travel guidance and travel restrictions of varying degrees were in effect during the COVID-19 pandemic, for a property to qualify as a taxpayer’s principal residence as defined in section 54 of the Act for the year, the condition that the property be ordinarily inhabited by the individual, the individual’s spouse, common-law partner, former spouse, former common-law partner or child in the year is still required to be met.
21 January 2016 Roundtable, 2016-0625161C6 F - Résidence principale habitée par un enfant
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"
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
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
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 | 260 |
9 June 2011 Internal T.I. 2011-0395001I7 F - Co-propriété indivise d'un duplex
Mr. Y and Ms. X , who were the undivided co-owners of a duplex, with each occupying one of the two constituent housing units, disposed of the building and, in the year of disposition, designated their housing unit as their principal residence for the three years they lived there. Could they each use the principal residence exemption to completely shelter their gains under s. 40(2)(b)? In responding affirmatively, CRA stated:
[A] housing unit which has the exclusive use and enjoyment of a taxpayer meets the qualifying criteria for a principal residence. …[C]o-ownership is defined in the C.C.Q. as ownership of the same property, jointly and at the same time, by several persons. The property held in undivided co-ownership may therefore qualify as a principal residence under the terms of the Act. However, according to the findings in Boulet, the co-owner can claim the principal residence exemption only in respect of the housing unit in which he or she lives (or which is inhabited by his or her spouse or common-law partner or former spouse or former spouse or common- law partner or by a child of the undivided co-owner.)
In conclusion, if all the conditions of the definition of principal residence under section 54 are otherwise satisfied, Mr. Y and Ms. X could respectively designate the duplex unit in which they ordinarily reside as their principal residence.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - General Concepts - Fair Market Value - Land | although each 50% co-owner of a duplex has an undivided interest in the whole dwelling, the FMV of her interest relates exclusively to the housing unit occupied by her | 190 |
| Tax Topics - General Concepts - Ownership | co-ownership interest is in the whole but valuation of the part occupied should reflect rights of exclusive possession | 317 |
17 May 2010 External T.I. 2009-0346011E5 F - Immeuble - Convention Canada - Portugal
A Portuguese citizen and Canadian resident disposes of a (capital property) immovable at a gain that is not taxable under Portuguese tax law. Before addressing the application of Art. 13 and 23 of the Portugal-Canada Convention, CRA noted that if the property qualified as the individual’s principal residence, the gain could be exempted under s. 40(2)(b).
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Treaties - Income Tax Conventions - Article 25 | no discrimination in Canada taxing a Canadian resident on a Portuguese real estate gain exempted from Portuguese tax | 114 |
8 February 2010 External T.I. 2009-0335041E5 F - Résidence principale
Respecting a taxpayer who was the one living in a house owned by his daughter, CRA indicated that neither of them could claim the principal residence exemption, as he was not the owner and was not in a qualifying relationship (e.g., spouse or child) with the owner.
29 August 2008 External T.I. 2008-0289971E5 F - Disposition d'un immeuble
An individual acquired a piece of land for the purpose of building a dwelling on it that would be used partly for rental purposes and partly as a principal residence but, for health reasons, disposed of the property before having completed construction or inhabiting it. CRA stated:
Even if a person lives in a dwelling for a short period of time during the year, this is sufficient for the dwelling to be considered as "ordinarily inhabited in the year" by that person.
However, here, as it had not been ordinarily inhabited at all, it did not qualify for the principal residence exemption.
10 January 2007 External T.I. 2006-0171132E5 F - Revenu locatif
The taxpayer and his wife purchased a bungalow for their daughter, who was a single parent with a low income, with her staying there and being charged rents to cover maintenance, insurance, municipal and school taxes and mortgage interest. As there is no intention to profit from the rent, it will decrease as the mortgage is repaid. The daughter will receive the house ownership as an inheritance.
After finding that the rent was not required to be included in their income, as there was no source of income, CRA went on to state:
[W]hen disposing of a rental property … you may be able to take advantage of the principal residence exemption when disposing of the residence if the property is used as a principal residence. However, it should be noted that a taxpayer may only designate one residence per family (i.e. you and your spouse) per year if the property meets the principal residence criteria.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 3 - Paragraph 3(a) - Business Source/Reasonable Expectation of Profit | house rented to daughter at below-market rent was not a source of income – rents excluded form income | 226 |
17 February 2005 External T.I. 2004-0091811E5 F - Exemption pour résidence principale
A single taxpayer (Mr. A) has been living in the basement of a residence acquired by him, with his mother (Ms. B) living on the ground floor without paying rent to her son for her use of half of the residence's living space.
CRA indicated that if Mr. A's residence was only one housing unit, he would be able to consider the entire residence as his principal residence, despite his mother’s occupancy of half of the unit.
If there was one housing unit held in co-ownership, each would be able to claim the principal residence exemption in proportion to his or her undivided share in the residence.
If Mr. A owns the entire residence, but there are two separate housing units, he could only claim the principal residence exemption for the equivalent portion of the housing unit he occupied, i.e. the basement, as it was only the basement unit that was ordinarily occupied by him.
Where the residence was acquired in co-ownership and there were two housing units, the principal residence exemption would be restricted to the undivided share of each of the taxpayers in the housing unit he or she lived in, i.e. 50% of the occupied housing unit. However, in such a situation “the relevant Tax Services Office [should] determine … what would be the appropriate result in accordance with the tax policy underlying this exemption.”
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 54 - Principal Residence | separate municipal addresses not determinative that basement occupied by son and ground floor occupied by mother were two housing units | 129 |
Paragraph (a.1)
Administrative Policy
17 August 2010 External T.I. 2010-0367371E5 F - Fin d'un usufruit - résidence principale
An individual purchased a housing unit for which he established a usufruct in favour of his parents. At all relevant times, the individual owned another housing unit, which he inhabited with his spouse and children. In order to dispose of the housing unit on which the usufruct was established to a third party, the usufructuaries renounced their right of usufruct.
CRA noted that, under s. 248(3), the parents and the individual were respectively deemed to be the income and capital beneficiaries of a trust, and that the renunciation gave rise to a dissolution of this deemed trust, with the result that s. 107(2) would apply to the deemed distribution of the trust property, unless an election was made under s. 107(2.01) or (2.001) in order for the trust to realize a gain for which it could claim the principal residence exemption.
Respecting the availability of the principal residence exemption to the trust, CRAs noted that, under para. (a.1) of the "principal residence" definition, the ordinary inhabitation requirement could be satisfied by a specified beneficiary, whose definition in subpara. (c.1)(ii) referenced “an individual who, at any time in the calendar year ending in the year, is beneficially interested in the trust (as defined in subsection 248(25)) and ordinarily inhabited the housing unit or has a spouse or common-law partner, former spouse or common-law partner or child who ordinarily inhabited the housing unit." CRA then stated:
If this is the case, it is permitted for a personal trust to elect under subsection 107(2.01) to ensure that the rollover provision of subsection 107(2) does not apply in respect of a distribution of property that could have been designated as the trust's principal residence before the distribution.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(3) | dissolution of s. 248(3) trust when the usufructuaries renounced their right of usufruct | 163 |
| Tax Topics - Income Tax Act - Section 107 - Subsection 107(2.01) | deemed s. 248(3) trust that dissolved when the usufructuary parents renounced their, makes a s. 107(2.01) or (2.001) to apply principal residence exemption to dissolution gain | 287 |
Paragraph (c)
Administrative Policy
11 October 2019 APFF Roundtable Q. 3, 2019-0812621C6 F - Changement d’usage-impact sur l’exemption pour résidence principale
After Monsieur acquired a duplex in January 2011, he used the two units for renting to a third party and as his personal residence, respectively. In July 2019 he ceased to rent out the first unit, and appropriated it to his residence. By making a s. 45(3) election respecting his change of use under s. 45(1)(c) (as permitted by the 2019 Budget changes), he was deemed to have not disposed of that unit.
If he disposed of the duplex in December 2022, how is he to compute the principal residence exemption? After noting that the duplex was a single property, even though it included two housing units, CRA responded:
[T]here are three housing units in the immovable over the years, namely the unit that the taxpayer rented from 2011 to 2019 (Unit 1), the one in which the taxpayer lived from 2011 to 2019 (Unit 2) and the housing unit resulting from the 2019 in which the taxpayer lived from that time on (Unit 3).
Where more than one housing unit in an immovable is eligible for a principal residence designation for different years, the taxpayer must file with the taxpayer’s income tax return for the taxation year of the disposition of the property a T2091IND-WS Principal Residence Worksheet, and designation form T2091 (IND) - Designation of a Property as a Principal Residence by an Individual (Other than a Personal Trust) for each of the units in the immovable that are the subject of a designation.
The taxpayer will therefore have to file two worksheets and two T2091 forms … if the taxpayer wishes to designate Unit 2 and Unit 3 as his principal residence for the applicable years.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 45 - Subsection 45(3) | method for making s. 45(3) election where conersion of duplex | 181 |
| Tax Topics - Income Tax Act - Section 43 - Subsection 43(1) | allocation of ACB between units in a duplex | 177 |
5 October 2018 APFF Financial Strategies and Instruments Roundtable Q. 11, 2018-0761571C6 F - Missing info on disposition of principal residence
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.
- 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?
- 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 | 67 |
6 October 2017 APFF Roundtable Q. 3, 2017-0709011C6 F - Désignation d’un bien comme résidence principale
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.
- 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)?
- 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 | 98 |
| Tax Topics - Income Tax Act - Section 40 - Subsection 40(2) - Paragraph 40(2)(b) | no loss of bonus year if standard designation |
15 April 2004 Internal T.I. 2004-0062451I7 F - Résidence principale
A taxpayer disposed of land in excess of ½ a hectare, did not file a Form 2091, did not report any capital gain, and on audit was unable to demonstrate that the excess land was necessary for the use and enjoyment of the residence, so that there was a capital gain on the disposition of such excess land. The Directorate confirmed its policy that, except in the limited circumstances described in IT-120R6, subpara. 7(b), such a taxpayer was not required to file the Form where the principal residence portion was fully exempted, and that the taxpayer was required to compute the capital gain on the excess land based on an allocation of the proceeds and ACB.
Paragraph (c.1)
Administrative Policy
7 October 2020 APFF Roundtable Q. 5, 2020-0852171C6 F - Usufruct of a principal residence
A housing unit is subject to a usufruct created by the Quebec will of Mr. X, with Mr. X’s surviving spouse (Ms. X) being the usufructuary, and their child being the bare owner. Ms. X ordinarily inhabits the housing unit.
CRA indicated that the death of the usufructuary would terminate the usufruct and the deemed trust that had arisen under s. 248(3), which would imply the distribution of the housing unit to the bare owner. Upon the termination of the deemed trust, since the distribution of the property by the deemed trust (referred to in s. 104(4)(a)(i)), would be made to a beneficiary other than the surviving spouse, s. 107(4) would apply to the distribution, so that s. 107(2.1) would result in realization of a capital gain by the deemed trust. The sale of the residence could also generate a capital gain to the deemed trust. However, the deemed trust, a personal trust, could claim the principal residence exemption under s. 40(2)(b), provided that the conditions for the property to qualify as a “principal residence” were met. In this regard, CRA stated:
Since Ms. X would be beneficially interested in the trust under paragraph 248(3)(d), she could be considered a specified beneficiary as defined in subparagraph (c.1)(ii) of the definition of "principal residence" in section 54 to the extent that she ordinarily inhabited the residence during the years the deemed trust owned it by virtue of subsection 248(3). That would allow the deemed trust to designate the residence as its principal residence, provided that all the other conditions of the definition of "principal residence" in section 54 were also satisfied.
Regarding what would be the consequences of Ms. X surrendering her usufruct, CRA noted that such surrender would terminate the deemed trust and result in the distribution of the deemed trust’s property to the bare owner. Ss. 107(2.1) and (4) would apply to this distribution. However:
As in the case where the termination of the deemed trust resulted from the death of the usufructuary, and given that the deemed trust would be a personal trust, it would be possible for the deemed trust in this situation to claim the principal residence exemption under paragraph 40(2)(b) to reduce the capital gain realized as a result of the termination of the usufruct, provided that the conditions of the definition "principal residence" in section 54 were all satisfied in respect of the residence.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 107 - Subsection 107(4) | application of s. 107(4) to termination of deemed s. 248(3)(a) spousal trust | 472 |
| Tax Topics - Income Tax Act - Section 70 - Subsection 70(6) - Paragraph 70(6)(b) - Subparagraph 70(6)(b)(ii) | s. 70(6)(b)(ii) not satisfied where residence of deceased passes to a usufruct for his surviving spouse for a fixed term of years | 218 |
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(3) | application of s. 248(3) to usufruct created by will and terminated by death of usufructuary or surrender by her, or assignment or death by bare owner | 286 |
21 November 2017 CTF Roundtable Q. 2, 2017-0724121C6 - Trusts and principal 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)
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 - Section 107 - Subsection 107(2.01) | specified and non-specified beneficiaries | 158 |
5 October 2012 Roundtable, 2012-0453941C6 F - Principal residence owned by a trust-exemption
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 | 155 |
2 February 2006 External T.I. 2005-0111911E5 F - Participation indivise dans un immeuble-fiducie
At the time of Mr. X's death, the usufruct of all the property held by Mr. X, including his undivided share in a two-unit Immovable (one of which had been used as the home of him and his spouse, Ms. X), devolved to her and the bare ownership devolved to the children. Ms. X remained in her home (one of the units), and the Immovable was subsequently sold.
After finding that, pursuant to s. 248(3)(a), on the death Ms. X acquired an income interest in a testamentary trust, and the children acquired a capital interest, CRA stated:
The fact that there are two different civic numbers … is an indication that there are two housing units. However, other elements may also come into play, such as separate entrances, separate heating systems, separate hot water tanks, a tax account with two civic addresses, etc. … [W]e have assumed that the Immovable had two separate housing units.
CRA went on to indicate that the principal residence exemption could be claimed based on the specified beneficiary rule.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 70 - Subsection 70(5) | grant under will of usufruct and bare ownership to surviving spouse and children, respectively, resulted in a deemed s. 70(5) disposition to a testamentary trust | 124 |
9 December 2003 External T.I. 2003-0032585 - Immeuble détenu par une succession
CCRA indicated that since the taxpayer was a usufructuary of the estate and, thus, an income rather than capital beneficiary of the estate, the s. 107(2) rollover was not available. However, as she was a “specified beneficiary” who occupied a portion of the property as her residence, it appeared that the estate could designate that portion of the property as her principal residence on its transfer to her.
In particular, CCRA stated:
The term "beneficially interested", as defined in subsection 248(25), includes both beneficiaries with a capital interest in a trust and beneficiaries, such as yourself, with only an income interest. Consequently … the estate may designate the portion of the property that you occupied as your principal residence since its acquisition. In the event that the property is transferred to you by the estate, the estate could benefit from the principal residence exemption with respect to the portion you lived in and thus reduce or eliminate the gain realized with respect to that portion of the property.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 107 - Subsection 107(2) | s. 107(2) rollover unavailable to an income beneficiary | 69 |
Subparagraph (c.1)(ii)
Administrative Policy
18 March 2005 External T.I. 2004-0089661E5 F - Fiducie personnelle-Résidence principale
Father acquired a rental property (the "Immovable") in 1956 and, on his death in 1994, devised the usufruct of the Immovable to his wife ("Mother") and the bare ownership of the Immovable to his daughter ("Daughter"), who had been living in and renting a housing unit in the Immovable since 1988, continued to pay rent after Father’s death. Would the Daughter’s living in one of the housing units allow her to benefit from the principal residence exemption where Mother renounced her usufruct during her lifetime in favour of Daughter, or such usufruct was devised to Daughter upon Mother's death?
After noting that the usufruct had created a deemed trust under s. 248(3), CRA indicated that if the circumstances are such that the personal trust is deemed to dispose of the Immovable at FMV (pursuant to s. 104(5) or 107(2.1), it is the personal trust that can make the designation. If the trust distributes the property to a beneficiary in satisfaction of the beneficiary’s capital interest in the trust and the criteria in 107(2) are satisfied, it is the beneficiary who may make the designation. In this case, if the conditions for the application of s. 40(7) are satisfied, the property will be deemed to have been continuously owned by the beneficiary since the trust last acquired the Immovable. In this regard, CRA stated:
Since Daughter, a specified beneficiary of the Trust, ordinarily inhabits a portion of the Immovable, we are of the view that the Trust may designate that portion of the Immovable as a principal residence as long as all of the conditions of the definition of "principal residence" in section 54 of the Act are satisfied, even if the Trust leases a portion of the Immovable to Daughter. Indeed, the definition of "principal residence" does not provide that a rented residence cannot constitute a principal residence where the tenant who lives in the residence is a specified beneficiary of the personal trust or one of the persons referred to in paragraph (a.1) of that definition.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 107 - Subsection 107(4) | application of s. 107(4) to spouse trust respecting residence turned on whether such trust was terminated by such income interest being distributed to the capital beneficiary during the spouse’s lifetime or on her death | 282 |
| Tax Topics - Income Tax Act - Section 106 - Subsection 106(2) | s. 106(2) engaged where income interest renounced in favour of capital beneficiary, but not where extinguishment on death | 174 |
2 November 2004 External T.I. 2004-0063491E5 F - Droit de bénéficiaire et résidence principale
The only two beneficiaries of a discretionary personal trust are the two adult children of the family, except that in the event of the last to survive dying intestate and without issue, the parents would become the beneficiaries. The trust acquired a residence that is ordinarily inhabited by both parents (own a second property) and the children. Are the parents considered to be specified beneficiaries of the trust under s. (c.1)(ii) on the basis of being “beneficially interested” in the trust?
After noting that the scope of s. 248(25) was “very broad,” CRA stated:
Where the trust indenture, in a particular situation, provides that a person may receive an interest under a statute governing the intestate death of an individual trust beneficiary, we are of the view that the person is considered to be beneficially interested in the trust. Thus, the parents would be considered to be beneficially interested in the trust and, consequently, they would satisfy the first condition of subparagraph (c.1)(ii) of the definition of "principal residence" in section 54.
In addition, where a trust grants a person a right to inhabit a housing unit, owned by the trust, the person would be considered to have a beneficial interest in the trust.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 248 - Subsection 248(25) | an individual who would take in the event of the intestacy of a named beneficiary of a trust is beneficially interested in the trust | 279 |
5 December 2002 Internal T.I. 2002-0171847 F - RESIDENCE D'UNE FIDUCIE
An individual who is a beneficiary of a personal trust rents a residence owned by the trust and ordinarily inhabits the residence. CCRA indicated that since the individual appeared to be a specified beneficiary of the trust who ordinarily inhabited the residence, the trust could designate the residence as its principal residence as long as all the other conditions of the definition of "principal residence" were met, even though it rented the residence to that beneficiary.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 15 - Subsection 15(2.1) | s. 15(2) applies to loan made by a corporation to a personal trust of which its shareholder is a beneficiary | 99 |
Subparagraph (c.1)(iii)
Administrative Policy
19 October 2006 Internal T.I. 2006-0173261I7 F - Avantage conféré par une fiducie
A home or cottage is held by a trust with Mr. X and his family as well as a corporation owned by his spouse, as beneficiaries. If the trust names the corporation as beneficiary, does it lose the principal residence exemption? CRA responded:
In order for a personal trust to designate a residence as its principal residence for a year, certain conditions must be satisfied including that no partnership or corporation, other than a registered charity, is beneficially interested in the trust during the year.
Subsection 248(25) provides that a person or partnership beneficially interested in a particular trust includes any person or partnership that has any right (whether immediate or future, whether absolute or contingent or whether conditional on or subject to the exercise of any discretion by any person or partnership) as a beneficiary under a trust to receive any of the income or capital of the particular trust either directly from the particular trust or indirectly through one or more trusts or partnerships.
[Thus] the corporation would be beneficially interested in any year. The personal trust would then be unable to designate the residence as its principal residence.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 105 - Subsection 105(2) | no s. 105(2) benefit if no trust income, and benefit to beneficiary would generate a s. 104(6) deduction | 95 |
| Tax Topics - Income Tax Act - Section 105 - Subsection 105(1) | tolerance re use of trust personal use property by beneficiary or related person does not extend to unrelated person, but no benefit re payment of interest expense | 379 |
| Tax Topics - Income Tax Act - Section 15 - Subsection 15(1) | no s. 15(1) benefit if trust confers benefit directly on shareholder of a corporate beneficiary | 148 |
Subparagraph (c.1)(iii.1)
Clause (c.1)(iii.1)(B)
Finance
4 September 2019 Comfort Letter - Principal Residence Exemption for Trusts
Beginning after 2016, eligibility for the principal residence exemption was limited to three categories of trusts, including a qualified disability trust that was a testamentary trust - so that an inter vivos trust was established for the benefit of an individual eligible for the disability tax credit (DTC) would not qualify. Finance stated that it would recommend an amendment (effective for taxation years beginning after 2016) to:
Allow … an inter vivos trust for the benefit of an individual who is DTC-eligible to be eligible to claim the principal residence exemption as long as certain conditions are met. To this end, we will recommend that the definition "principal residence" be amended so that a trust will be allowed to designate a property as a principal residence for a taxation year provided that all other designation requirements are fulfilled (including the requirements relating to occupation of the property and one property per family unit) and the following conditions are met:
- a beneficiary of the trust is an individual resident in Canada during the year who is eligible for the DTC;
- the beneficiary is a child, spouse, common-law partner, or former spouse or common-law partner, of the settlor of the trust; and
- no person other than a beneficiary described above may, during the beneficiary's lifetime, receive or otherwise obtain the use of any of the income or capital of the trust.
Paragraph (d)
Cases
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)
Cases
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.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 40 - Subsection 40(2) - Paragraph 40(2)(b) | 298 |
Administrative Policy
10 June 2016 External T.I. 2015-0590371E5 F - Résidence principale - stationnement
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 | 162 |
11 October 2012 External T.I. 2012-0433681E5 F - Résidence principale terrain adjacent
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.
23 January 2012 External T.I. 2011-0409671E5 F - Propriété superficiaire
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 | 154 |
| 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 where taxpayer owns it | 160 |
| Tax Topics - General Concepts - Ownership | whether tenant had Quebec right of superficies to garage erected by it determined whether it was its property | 91 |
| 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 | 223 |
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."
22 September 2010 External T.I. 2010-0373041E5 F - Résidence principale
The correspondent sold two pieces of land adjacent to the land on which the individual’s principal residence was located to an arm’s length purchaser that, together with the retained land, totaled less than one-half hectare. CRA stated:
Fourt … held … that the mere fact of holding separate title to land adjacent to the title to the land subjacent to the housing unit does not preclude the entire area not exceeding one-half hectare from qualifying for the principal residence exemption to the extent that the facts demonstrate that the immediately contiguous land may reasonably be regarded as contributing to the use and enjoyment of the housing unit as a residence.
If that is your case, you may have disposed of only part of a property that qualifies as your principal residence and you may be able to designate the land as your principal residence … .
23 January 2008 External T.I. 2007-0237251E5 F - Résidence principale - Destruction d'un triplex
A taxpayer owns a triplex that was completely destroyed in a fire. He ordinarily inhabited part of the triplex as his principal residence before the destruction, and rented the balance, and also owned a garage on the land that was not destroyed in the fire and had been used exclusively for personal use. Before discussion the computation of the s. 40(2)(b) deduction, CRA noted that the contiguous land referred to in para. (e) included the garage given that under the Civil Code “the owner of an immovable (for example, land) is the owner by accession of all constructions and works located on the immovable,”
CRA indicated that the taxpayer’s gain could be reduced under s. 40(2)(b), but “only for those taxation years in which the taxpayer ordinarily inhabited the principal residence, i.e., before the triplex was destroyed by fire,” and with an allocation between the principal residence portion and the rental portion being required, likely based on the relative building areas for the two uses.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 40 - Subsection 40(2) - Paragraph 40(2)(b) | gain on triplex destroyed by fire then sold should be allocated between the personal use portion and rental portion based on relative building areas, but with years of use being pre-fire | 181 |
22 July 2003 External T.I. 2002-0175715 F - GAIN EN CAPITAL RESIDENCE PRINCIPALE
A taxpayer purchased agricultural lands on which he constructed his principal residence and subsequently inherited an adjacent plot from his parents. The lands are currently protected lands under a Quebec Act preserving agricultural lands (the "Preservation Act"). CCRA found that the principal residence exemption would apply only to the first ½ hectare of land subsequently disposed of by him given that the Preservation Act controls would not have precluded him from having acquired and held the 1/2 hectare on a severed basis.
9 April 2002 Internal T.I. 2001-0112817 F - RESIDENCE PRINCIPALE - VENTE D'UN DUPLEX
Where the owner of a duplex occupied one unit as his principal residence and rented out the other unit, on his sale of the duplex could he treat the entire gain on the land as exempted by the principal residence exemption? The Directorate responded:
[A] portion of the land must be attributable to the rental of a portion of the building since it would be unlikely that no portion of the land would be used for the rented portion of the duplex. Our position is supported by … Berkovic … 83 DTC 335 and …. Mitosinka … .
It further indicated that the building allocation generally is made on the basis of the relative floor areas of the rented and principal residence portion, and that the same proportion is generally used to allocate the land.
16 August 2001 Internal T.I. 2001-0079317 F - RESIDENCE PRINCIPALE DEMI-HECTARE
The taxpayer acquired a lot on which he constructed a residence and also used in part for business purposes and also acquired an adjoining lot on which he erected buildings used for business purposes. All the lots were then sold.
After stating that the principal residence exemption could not extend to the business-use lots (the principal residence exemption could only be claimed for a single property), the Directorate stated:
[T]he Agency does not normally require the taxpayer to demonstrate that half a hectare of land or less, including the area on which the housing unit is built and excluding the part of the land used to earn business or property income, contributes to the use and enjoyment of the housing unit as a residence.
Paragraph (f)
Administrative Policy
5 October 2012 Roundtable, 2012-0453941C6 F - Principal residence owned by a trust-exemption
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 | 196 |