Principal Issues: [TaxInterpretations translation] Can a taxpayer who ordinarily inhabits in a housing unit claim the exemption for the principal residence where his daughter owns it?
Position: Neither the taxpayer who ordinarily inhabits the housing unit nor the owner of the housing unit will be able to claim the principal residence exemption under paragraph 40(2)(b) since not all of the conditions for the designation of a property as a principal residence under the definition of "principal residence" in section 54 are satisfied.
A housing unit that is not ordinarily inhabited by its owner, the owner’s spouse or common-law partner, former spouse or common-law partner or one of the owner’s children will not qualify as a principal residence for either the taxpayer who ordinarily inhabits the housing unit or for the owner.
Reasons: Legislative analysis. In order for the taxpayer's gain from the disposition of any property that was the taxpayer's principal residence to be eliminated or reduced under paragraph 40(2)(b), inter alia, the property must qualify as a principal residence. The definition "principal residence" in section 54 defines a taxpayer's principal residence for a taxation year to be a housing unit owned in the year by the taxpayer, by the taxpayer’s spouse or common-law partner or former spouse or common-law partner or by a child of the taxpayer.
XXXXXXXXXX 2009-033504 I. Landry, M. Fisc. February 8, 2010
XXXXXXXXXX ,
Subject: Principal residence
This is in response to your fax of July 30, 2009, in which you essentially asked us whether it is possible for a taxpayer who ordinarily inhabits a housing unit to claim the principal residence exemption when his daughter owns the housing unit.
Specifically, you described the following situation. A taxpayer did not have the financial ability to acquire a home on his own. Therefore, his daughter obtained a loan to finance part of the purchase of the home and assumed part of the costs related to the home, all without living in it. However, in order to provide the financing, the financial institution required that the taxpayer's daughter be the sole owner, even though the taxpayer gave a down payment representing half of the cost of acquiring the housing unit. At that time, this situation did not cause a problem for the taxpayer since his daughter was his sole heir.
Unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act (the "Act").
The situation you have indicated in your letter appears to be related to an actual situation involving a specific taxpayer. As explained in Information Circular 70-6R5, Advance Income Tax Rulings, it is not the Directorate’s practice to comment on proposed transactions involving specific taxpayers otherwise than in the form of an advance income tax ruling. If your situation involves a specific taxpayer and a completed transaction, you should provide all relevant facts and documentation to the appropriate Tax Services Office for its views. We are, however, prepared to provide the following general comments, which we hope you will find helpful.
Paragraph 40(2)(b) generally allows a taxpayer's gain otherwise determined on the disposition of a property that was the taxpayer's principal residence at any time after the acquisition date to be eliminated or reduced by reference to the number of years that the property was the taxpayer's principal residence.
The definition "principal residence" in section 54 defines a taxpayer's principal residence for a taxation year to be a housing unit that is owned in the year by the taxpayer, whether jointly with another person or otherwise. Under this definition, where the taxpayer is an individual other than a personal trust, the housing unit must also be ordinarily inhabited in the year by the taxpayer, by the taxpayer's spouse or common-law partner or former spouse or common-law partner or by a child of the taxpayer.
Consequently, a housing unit will not qualify as a principal residence for a taxpayer who ordinarily inhabits a housing unit where the taxpayer does not own the housing unit. Similarly, a housing unit will also not qualify as a principal residence for the owner where the owner, the owner’s spouse or common-law partner or former spouse or common-law partner or one of the owner’s children does not ordinarily inhabit the housing unit.
If this is the case, we are of the view that, since not all of the conditions for designation of a property as a principal residence are satisfied, neither the taxpayer who ordinarily inhabits the housing unit nor the owner of the housing unit will be able to claim the principal residence exemption under paragraph 40(2)(b).
Best regards,
Louise J. Roy, CGA
Manager
for the interim Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.