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.
Principal Questions:
1)Whether, for the purposes of the principal residence exemption in
paragraph 40(2)(b), the two units of a duplex can be considered as one
“principal residence” as defined in section 54, in a situation where the
owner occupies one unit while her aging parent occupies the other?
2) Is the fact that an internal access has been added between the two
units and that the owner and her parent share most of their meals in the
same unit a sufficient indication that the two units are one “principal
residence”?
Position Taken: 1) Likely not. 2) No.
Reasons: 1) and 2): Prior positions. Each unit appears to be one housing unit for the purposes of the principal residence exemption.
Ordre des CPA du Québec - Table ronde sur la fiscalité des particuliers
Colloque du 21 janvier 2016
Question 9
Résidence principale et maison intergénérationnelle
An individual purchases a duplex to support and provide care to an elderly parent. The duplex has two identical units, each consisting of a bedroom, a kitchen, a bathroom and a living room. The building has two separate street addresses for each unit, and each units has its own electricity meter.
The owner makes certain renovations to the building, including the addition of a door providing interior access between the two units. These renovations are intended to facilitate communications between two. The vast majority of time, meals are prepared and taken in the living space of the owner and the owner’s family.
Questions to CRA
a) On resale of the property, could the principal residence designation be made for the entire building? In other words, does the CRA consider there to be a disposition of one or two housing units?
b) Would the answer be the same if the property belonged to the parent?
c) Would the answer be the same if the property was acquired by the child as an intergenerational home as that term is defined by several municipalities (i.e., one street address but with separate interior spaces)?
CRA response to the question a)
Section 54 defines a principal residence as being, among other things, a housing unit that an individual owns, whether jointly with another person or otherwise, provided that the housing unit was ordinarily inhabited by the taxpayer, by the taxpayer’s spouse or common-law partner or former spouse or former common-law partner or by a child of the individual.
The term "logement" (or, the term "housing unit" used in the English version of the definition of "principal residence" in section 54) is not defined in the I.T.A. In the absence of a definition conferring a particular technical meaning on this term for the purposes of the definition of "principal residence" in section 54, one must rely on its ordinary meaning, including the meaning accorded in various dictionaries. To summarize a review of various French and English dictionary definitions, a housing unit is normally defined as premises occupied by a person or group of persons that contains a number of elements such as a kitchen, bathroom, etc. A similar approach was also adopted by the Tax Court of Canada, in a case in which it concluded that two separate parts of the same house (only one of which was owned by the taxpayer) constituted separate housing units and, therefore, only one of them was eligible for exemption. (Footnote 1)
The question of whether two units of a duplex together constitute a single housing unit for the purposes of the definition of "principal residence" in section 54 or if each of them instead is a separate housing unit is one which can be responded to only after an analysis of all relevant facts and circumstances. That said, in general, we are of the view that two 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.
In contrast, in a situation where each unit of a duplex can be ordinarily inhabited without significant renovation and without access to the other unit being provided to the occupant (for example, if each unit has a kitchen and a bathroom of its own and they both have separate outside access), it will be difficult to consider that these two units as a single housing unit within the meaning of section 54.
Besides the degree of integration of the two units, other factors to consider in determining if the two units of a duplex form a single housing unit include:
- the existence of registered title to one or two properties;
- the existence of a single street address for the building or two separate street addresses;
- the existence, or not, of separate entrance doors; and
- the existence or not of separate accounts for public services.
This is not an exhaustive list and each situation must be reviewed in the light of its particular circumstances.
In light of the foregoing, in the situation described, the 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.
CRA response to question b)
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.
CRA response to question c)
Our comments would essentially be the same if the property acquired by the child was an intergenerational home rather than a duplex. In this regard, note that a detailed description of the characteristics of a particular given building would be required in order for us to be able to provide more specific comments. The fact that the building has a single street address would be one of the factors that could be considered in accordance with what is set out above. However, this alone could not, by itself, be determinative.
Melanie Beaulieu
(613) 670-8905
January 21, 2016
2016-062514
FOOTNOTES
Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:
1 Boulet v. Canada, 2009 DTC 1227 (TCC)