A tenant had been annually renewing a lease of a condo since the time the condo was first leased in July 2013. The condo was sold in February 2019. The new owner, who wished to dwell in the premises, was not entitled to terminate the lease until effective July 2020. In consideration for the early termination of the lease, the new owner paid $15,000 to the tenant.
2007-0254721R3 confirmed that an amount received for the termination of a lease can come within the principal residence exemption. For purposes of calculating the application of the principal residence exemption to the $15,000, should the tenant be treated as holding the residence since July 2011? CRA stated:
… [W]here the tenant of a leased property receives from the owner of that property an amount to obtain the termination of its lease … such an amount represents proceeds of disposition of part or all of the leasehold interest. …
The definition of "principal residence" in section 54 provides that a leasehold interest may be a principal residence.
In the context described, the CRA understands that there was a continuation of the residential lease each year and on the transfer of ownership between the old and the new owner. Consequently, there would have been no leasehold disposition until the lease was terminated and the date of acquisition of the leasehold interest should be the time the lease was acquired by the tenant from the former owner.