A taxpayer acquired a residence and the subjacent land in 20X1, ordinarily inhabited it for three years, then in 20X4, demolished it without building another. Is the principal residence deduction available on the taxpayer’s sale of the vacant land in 20X6? CRA responded:
[T]he land could be designated as a principal residence for the taxation years in which the taxpayer ordinarily inhabited the residence. Consequently, if all the conditions for designating a property as a principal residence are satisfied … only the number of years the taxpayer ordinarily inhabited the residence, excluding the years the land was vacant, could be included in the description of B in the formula in paragraph 40(2)(b).