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:
Application of section 54, 110.6(19) and 40(2)(b) to a situation outlined by the writer. Who owns properties for the purposes of the capital gains election and principal residence exemption. Completion of T2091.
Position TAKEN:
Both properties are owned by only one of the spouses as legal ownership has been registered in only one of the spouse's name since time of purchase and no other information provided. Thus, this spouse as sole owner will be the only spouse eligible to designate either property as his principal residence assuming other requirements are met as well as make the capital gains election as the owner of either property as of February 22, 1994.
Reasons FOR POSITION TAKEN:
IT-120R4, previous correspondence
950862
XXXXXXXXXX D. Zion
Attention: XXXXXXXXXX
April 12, 1995
Dear Sirs:
Re: Capital Gains Election on Principal Residence
We are writing in response to your correspondence of March 29, 1995 in which you have requested our assistance regarding the application of the principal residence exemption and the capital gains election provisions to the situation described in your letter.
You state in your letter that a husband and wife have owned a house and cottage since 1954, but that both properties are legally registered in the husband's name only. You are of the view based on the comments in Interpretation Bulletin IT-120R4, that the pre-1982 gain on both the house and the cabin can be eliminated by having the husband designate the house as his principal residence while the wife would designate the cabin as her principal residence for the same time period. It is also your understanding that the gain on the cabin for 1982 to 1994 can be included in income equally by the two spouses, and the family unit can designate the house as its principal residence for the years 1982 to 1994. You have further requested clarification of how the Form T2091 should be completed with respect to designation of the cottage.
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R2. The following comments are, therefore, of a general nature only.
In the February 22, 1994 budget, the federal government announced that the $100,000 capital gains exemption would no longer be available for capital property or eligible capital property sold after February 22, 1994. However, taxpayers who owned such property at the end of February 22, 1994 and who have not used all of their $100,000 capital gains exemption, may file a one-time election. The election allows taxpayers to report a capital gain to take advantage of the unused portion of their $100,000 capital gains exemption, even though they did not actually sell their property. In order to recognize the accrued gain in respect of a property owned by a taxpayer at the end of February 22, 1994, the taxpayer is required to elect to have the provisions of subsection 110.6(19) apply to the property. This election can be made in respect of any property that constitutes capital property. With respect to the election on real estate, only the pre-March 1992 gains can be recognized which is based on the proration rules established in the February 1992 Budget.
Based on the information provided in your letter, we cannot agree with your comment that both the husband and wife in this situation own the cottage and house. As it appears that the husband is, and has always been, the sole owner of both properties, only he will be eligible to designate either property as his principal residence for purposes of the principal residence exemption assuming he otherwise meets the requirements of the principal residence definition contained in section 54 of the Act.
The choice of which property, assuming they would both qualify for designation, would be designated as a principal residence by the taxpayer for a particular year would be a decision to be made by the taxpayer on a review of all the relevant facts of the situation. We are not in a position to comment further on this issue as the most appropriate method of splitting the capital gains exemption and the principal residence exemption between two or more properties will hinge upon the holding period for each property, the number of years each qualifies as a principal residence, the total accrued gain on each property, the average annual increase in the value of the properties, the potential for future increases in the value of the properties, both on an absolute and average basis, and the intended holding period for each of the properties. In addition, we are not prepared to confirm whether or not either property would be a principal residence for a particular period of time, since such a designation can only be made at the time of disposition when all the relevant factors necessary to make a designation are known.
We would like to mention that if, as you have indicated, the husband chooses to designate the house as his principal residence for the entire period of ownership and it would so qualify, the cottage would not be eligible for designation as a principal residence in the same taxation years.
We trust that our comments will be of assistance to you. Should you have any further questions regarding this matter, we suggest that you contact your local Revenue Canada Tax Services office. Upon provision of all the facts of the situation they will be in a position to assist you.
Yours truly,
P.D. Fuoco
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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