S1-F3-C2 “Principal Residence” para. 2.7 states that a housing unit includes a unit in a duplex. However, in 2011-0417471E5, CRA indicated that a duplex which has not been legally divided is a single property for s. 45(1) purposes.
A triplex with an FMV of $300K, $500K and $1,500K at the beginning of Years 1, 11 and 16 (the time of its sale), respectively, consisted: as to 50%, of Unit 1, which had direct personal use until Year 10 inclusive and thereafter was rented; as to 25%, of Unit 2, which was rented until Year 10 inclusive, and thereafter was used personally; and, as to 25%, of Unit 3 which was rented until Year 10 inclusive, and thereafter was occupied by children (paying a low rent).
How does s. 40(2)(b) apply to the disposition of the triplex at the beginning of Year 16 at a gain of $1,200K (or to any deemed disposition at the beginning of Year 11 at a gain of $200K)? After first indicating that because, after the Year 11 changes in use, the use of the single property (the triplex) was still 50% personal and 50% 3rd-party rental, the s. 45 rules did not apply, CRA stated:
Where multiple units in a building are designated as a principal residence for different years, the taxpayer must file, within one year of the building’s sale, a Form T2091(IND) - Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust) for each of the units in the building covered by the designation. In the described situation, the taxpayer must file two T2091 forms in the year of the sale of the property if he is designating two units.
In calculating the capital gain, an allocation of the adjusted cost base ("ACB") and of the proceeds of disposition of a building made according to the area of each unit would, in some instances, be reasonable. However, the allocation must not necessarily be based on area. It must also take into account all factors that may affect the value of any of the units in the building.
Assuming that the value of Unit 1… represented 50% of the value of the building, the proceeds of disposition of the unit would be $750,000…[and] the ACB attributable to this unit was $150,000…the taxpayer would realize a capital gain of $600,000, of which part could be designated for purposes of the principal residence exemption.