Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Can two condomimiuns units be considered one single residence for purposes of the definition of "principal residence" in section 54 of the Act?
Position: No.
Reasons: The two condominiums units are two separate legal properties, each of which would be considered housing units and each owned by a different spouse.
2004-007363
XXXXXXXXXX Karen Power, CA
(613) 957-8953
October 5, 2004
Dear XXXXXXXXXX:
Re: Principal Residence
We are writing in reply to your letter of April 24, 2004, requesting our views on whether two separate condominium units may be considered a single "principal residence" under the Income Tax Act (the "Act").
The particular circumstances in your letter on which you have asked for our views involve a factual situation concerning a specific taxpayer. As explained in Information Circular 70-6R5, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. However, we are prepared to offer the following general comments, which may be of assistance
The Canada Revenue Agency's position on the "principal residence exemption" is set out in Interpretation Bulletin IT-120R6. If a property qualifies as a "principal residence", an exemption can be claimed under paragraph 40(2)(b) of the Act to reduce or eliminate any capital gain otherwise realized on the disposition of the property. The definition of "principal residence" of a taxpayer in section 54 of the Act refers in part to a particular property that is a housing unit, a leasehold interest in a housing unit or a share of the capital stock of a co-operative housing corporation acquired for the sole purpose of acquiring the right to inhabit a housing unit owned by the corporation and that is owned, whether jointly with another person or otherwise, in the year by the taxpayer. Paragraph 3 of IT-120R6 indicates that a housing unit can include an apartment or unit in a duplex, apartment building, or condominium.
For a property to be a taxpayer's principal residence for a particular year, the taxpayer must designate it as such and no other property may have been so designated by the taxpayer for the year. Furthermore, where the designation is for a year after 1981, no other property may have been designated as the principal residence of any member of the taxpayer's family unit for the year, as described in paragraph 6 of IT-120R6.
The condominium units referred to in your letter are two separate legal properties (which would each be considered housing units) and would, in our view, be considered two properties for purposes of the definition of "principal residence" contained in section 54 of the Act. You may wish to refer to Appendix A of IT-120R6 which provides examples on how to calculate the principal residence exemption in situations where more than one property has been owned continuously since before 1982 and in situations where property is owned by common-law partners.
In closing, we would note that we have not been provided with any information regarding the source of the funds used to purchase the condominium units, in order to establish whether the attribution rules would apply in respect of any gain resulting from the disposition of these units. In general terms, the attribution rules provide that income and capital gains and losses realized on property transferred or loaned from an individual to the individual's spouse or common-law partner (and on property substituted for that property) are generally deemed to be the income, gains or losses of the individual and not the individual's spouse or common-law partner. These rules are explained in Interpretation Bulletin IT-511R.
Copies of Interpretation Bulletins are available from your local tax services office or on the Internet at the following site - http://www.cra-arc.gc.ca/formspubs/type/menu-e.html.
We trust that our comments are of assistance to you.
Yours truly,
Milled Azzi, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch
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