A farmer disposes of his principal residence to a family farm corporation while retaining a life estate in it until he and his spouse die.
CRA indicated that when the farmer disposed of his remainder interest, while retaining the life estate, s. 43.1(1) applied so that he was deemed to have disposed of his life estate in the property for proceeds of disposition equal to its fair market value at that time, and was deemed by s. 43.1(1) to have reacquired the life estate immediately after that time at a cost equaling such proceeds. As a result, any gain accrued on the entire property would have been recognized at that time – but such gain would have been offset by the principal residence exemption.