Re: Provincial Residence Exemption
Pursuant to our telephone conversation with Mr. Mark Richer on October 30, 1991, we are referring the enclosed correspondence to your division for reply. As discussed with Mr. Richer, we are also providing you with the following comments which may be of assistance to you.
24(1)
The taxpayer's representative has requested us to confirm on an advance income tax rulings basis that the gain on the sale of the residence and l acre of land is exempt by virtue of paragraphs 40(2)(b) and 54(g) of the Income Tax (the Act).
Before commenting on the above situation, we wish to note that paragraph 54(g) refers to 1/2 hectare which is equivalent to 1.24 acres. Accordingly, the comments set out below in respect of the principal residence exemption are based on the assumption that 1.24 acres of land are involved.For the property ln question to qualify as a principal residence of the taxpayer for a particular year, she must have ordinarily inhabited it during that year for the purposes of paragraph 54(g)(i) of the Act. The Department's general position on this term is set out in paragraph 9 of Interpretation Bulletin IT-120R3. In relation to this requirement, that taxpayer apparently did not ordinarily inhabit the property from 1982 to 1991. Therefore, the property could not be considered to be her principal residence for those years.
There also appears to be a further problems. The formula set out in paragraph 40(2)(b) of the Act permits a deduction for the exempt portion of the gain based on the number of years for which a property was a taxpayer's principal residence and during which the taxpayers was a resident of Canada.
We also note that the preceding comments have been made on the basis of the information provided in the enclosed letter and that you may wish to obtain further details in considering the problem at hand.
As a final comment we are mentioning that the taxpayer is deemed to have disposed of her 24(1) property 24(1) pursuant to subparagraph 45(1)(-)(i) of the Act unless an election has been filed under subsection 45(2) of the Act. We also refer you to paragraph 31 of IT-120R3 which sets out circumstances under which this Department wall accept a late filed election.
If you require further assistance on any technical issues, we could be pleased to provide our views.
B.W. DathDirectorBusiness and General DivisionRulings Directorate
Legislative and Intergovernmental Affairs Branch