23 March 1995 External T.I. 9506995 - PRINCIPAL RESIDENCE EXEMPTION AND CAPITAL GAINS

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

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

Principal Issues:

Does entire parcel of land on which principal residence is located qualify for the principal residence exemption in calculation of the taxable capital gain?

Position TAKEN:

Question of Fact.

Reasons FOR POSITION TAKEN:

Unable to give definitive reply with limited information received.

					950699
XXXXXXXXXX				D. Zion

March 23, 1995

Dear XXXXXXXXXX:

Re: Principal Residence Exemption and Capital Gains Election

We are writing in response to your letter of November 30, 1994 which was forwarded to us for reply by the Toronto Tax Services Office. You have asked whether or not the property upon which your residence is located will be subject to capital gains taxation. We apologize for the delay in replying.

As we understand the facts relating to your property, the area of the property is greater than two acres. You are not currently permitted to sell or use any part of your property for any other purpose but as your single residence. You have provided correspondence from the XXXXXXXXXX that confirms that severance of the property is not permitted under the XXXXXXXXXX.

With a view to providing you with a more definitive response, we contacted the Planning Department at the

XXXXXXXXXX

Accordingly, we have insufficient information to enable us to give you a definitive reply in respect of your property. We do have however, some general comments which should be of some assistance.

Where a housing unit is situated on a large area of land, the land in excess of 1/2 hectare (one acre) will only qualify as being part of a principal residence to the extent that the individual establishes that it was clearly necessary in order for the housing unit to properly fulfil its function as a residence and not simply because it was desirable. Land in excess of 1/2 hectare could be necessary where the size or character of a housing unit together with its location on the lot makes excess land essential to its use or enjoyment as a residence. Land in excess of 1/2 hectare could also be necessary where the location of a housing unit requires excess land in order to provide the taxpayer with access to and from public roads. Another consideration which may be relevant in determining whether land in excess of 1/2 hectare is necessary for the use and enjoyment of the housing unit as a residence are subdivision restrictions and minimum lot sizes. In all cases, however, it is a question of fact as to how much, if any, of the excess land is necessary for the use and enjoyment of the housing unit as a residence.

Where a portion of the land does not qualify for the principal residence exemption, it will be subject to the capital gains provisions effective at the time of disposition. Paragraph 25 of IT-120R4 provides the Department's position with respect to the disposition of a property where only a portion of it is found to qualify as a principal residence. This discussion also includes comments on the valuation of the excess property which could be pertinent to your situation.

If you feel you require further assistance in determining the amount of your property that would qualify for the principal residence exemption, we suggest that you contact John Cunningham, Technical Advisor, Client Assistance at the Toronto North Tax Services office, 5001 Yonge Street, Suite 1000, North York, Ontario, M2N 6R9. Mr. Cunningham can also be reached by calling 1-416-218-4530. If the issue of subdivision restrictions or minimum lot sizes is to be considered, more information regarding the acquisition date and the details of the restrictions and zoning at that time should be provided. Other documentation such as a survey of the property would be of assistance and should also be included with any submission. Upon a review of all pertinent details and documentation they will be in a position to provide you with a more definite response.

We regret that we could not have been of more assistance.

Yours truly,

P.D. Fuoco
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch