Principal Question: Whether a property can be designated as a principal residence if it is rented by the son’s owner?
Position Adopted: Yes, if all other conditions are met.
Reasons: The definition of principal residence does not provide that a leased property cannot be a principal residence when the tenant who lives in the property is one of the persons mentioned in paragraph a) of this definition.
Ordre des CPA du Québec - Roundtable on personal taxation
January 21, 2016 Conference
Question 10 - Principal residence inhabited by a child
- A parent has a residence for 10 years.
- Throughout the period of 10 years, the building is leased to their adult child at less than fair market value. The child normally lives with his family.
- During these years, the parent lives in a seniors’ facility, and has no other property which could be designated as a primary residence.
Questions:
- On resale, may the parent designate the property as his principal residence for the 10 years?
- Would the answer be the same if the property were rented at fair market value and that rental income were reported on the parent’s income tax return?
CRA Response
We assume that the building is capital property of the taxpayer according to the meaning given to the term "capital property" in section 54 of the Income Tax Act (the "Act").
Generally, paragraph 40(2)(b) of the Act provides that the taxpayer’s gain, otherwise determined, from the disposition of property that was the taxpayer’s principal residence at any time after the date of its acquisition can be eliminated or reduced based on the number of years the property was the taxpayer’s principal residence.
The term "principal residence" is defined in section 54 of the Act. Subject to certain conditions, it includes among others a housing unit which the taxpayer owns, whether jointly or otherwise. Under paragraph a) of this definition, one of these conditions is that where the taxpayer is an individual other than a personal trust, the housing unit must ordinarily be inhabited in the year by the taxpayer, by the taxpayer’s spouse or partner or by the taxpayer’s former spouse or former partner or by one of the taxpayer’s children.
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.
Isabelle Landry
(450) 623-0193
January 21, 2016
2016-062516