Principal Issues: n the context of the construction, self-construction and replacement of an existing housing unit, when does the holding period begin for the purposes of subsection 12(13)?
Position: The holding period begins once the housing unit is habitable.
Reasons: In other circumstances, the CRA considers that a taxpayer building a housing unit on the land owned by the taxpayer becomes the owner of the housing unit once it becomes habitable.
FINANCIAL STRATEGIES AND FINANCIAL INSTRUMENTS ROUNDTABLE, 10 OCTOBER 2024
2024 APFF CONFERENCE
Q.3 Flipped property and self-construction
Subsection 12(13) defines "flipped property" as property (other than inventory) that is:
(a) prior to its disposition, a housing unit (or a right to acquire a housing unit) located in Canada;
(b) held by the taxpayer for less than 365 consecutive days before its disposition, with certain exceptions.
The Income Tax Act uses the term “housing unit” [“logement” in the French version], whereas the Department of Finance Explanatory Notes refer to a “housing unit” [“unité d’habitation” in the French version]. If we draw a parallel with the Home Buyers' Plan (“HBP”) and the First Home Savings Account (“FHSA"), the CRA has stated that the date of acquisition of the housing unit is the date on which the property becomes habitable (running water, electricity, heating, functional bathroom, etc.). We are of the view that this same definition should apply to the flipped property rules. David Sherman, a tax expert and author who comments on the Income Tax Act for Thomson Reuters, asked the following question, without giving an answer:
“New homes: If the property is held for over a year, but the house is torn down and rebuilt, is the “housing unit” (sold shortly after construction finishes) owned for less than 12 months? The unit did not exist for more than 12 months, even though the property was owned." (footnote 1)
He appears to have the same analysis as we do, that the housing unit must have existed for at least 365 days.
Question
In the context of the construction, self-construction and replacement of an existing housing unit, does the CRA apply the same concepts as those for the HBP and the FHSA to determine the date on which ownership of the property begins?
CRA Response
Subsection 12(13) defines “flipped property” as a housing unit (or the right to acquire one) situated in Canada and that, subject to certain exceptions, is owned or, in the case of a right to acquire, held by a taxpayer for a period of less than 365 consecutive days prior to its disposition. The holding period for the housing unit does not begin until the taxpayer becomes the owner.
In the situation where an individual constructs, has constructed or replaces the individual’s housing unit on land that the individual owns, the CRA is of the view that, generally, the individual will be considered to own a housing unit for the purposes of the flipped property rule as soon as the housing unit is habitable. In other words, the date on which ownership of the property begins for the purposes of subsection 12(13) is the date on which the housing unit becomes habitable.
It should be noted that determining when a housing unit has become habitable is essentially a question of fact that must be assessed in light of all the facts and circumstances specific to each situation.
Eric Paquin
October 10, 2024
2024-102780
FOOTNOTES
Due to the requirements of our systems, the footnotes contained in the original document are reproduced below:
1 Notes by David SHERMAN, The Practitioner's Income Tax Act, 50th [French] edition, Thomson Reuters, 2024, s. 12(13).