Sep 01, 1983

Principal Residence Exemptions #42


By Gerry Neely
B.A. LL.B.

In the first case, the question was whether or not the sale of 9.3 acres made by the taxpayers under threat of expropriation by a municipality, leaving 7/10ths of an acre upon which the taxpayers' house was situated, was exempt from taxation as falling within the principal residence exemption. Fourteen years prior to the sale, the taxpayers had bought a ten-acre parcel upon which they built their home. Ten acres was the minimum residential parcel then permitted by zoning. The evidence of the taxpayers was that when they purchased, they did not want ten acres, they wanted only enough land upon which to build their home. The balance was rented to a neighbouring farmer who grew crops upon it.

The issue was simple - did the 9.3 acres fall within the definition of principal residence contained in paragraph 54 (g) of the Income Tax Act? Could it be said that "the land subjacent to the housing unit and such portion of any immediately contiguous land could reasonably be regarded as contributing to the taxpayer's use and enjoyment of the housing unit as a residence"? Since the taxpayers could not legally have occupied the housing unit as a residence on less than ten acres, the Court held that it followed that the entire ten acres, both subjacent and contiguous, must be regarded as contributing to the use and enjoyment of the housing unit as a residence. The disposition was a disposition of a principal residence and therefore exempt from tax.1

In the second case, the taxpayer sold a nine-unit apartment building consisting of six two-bedroom apartments, each measuring 800 square feet, and three three-bedroom apartments, measuring 1,000 square feet each. The taxpayer occupied one of the three-bedroom apartments as his principal residence. The Department of National Revenue allowed an exemption of one-ninth of the total gain as representing that part of the capital gain attributable to the disposition of the taxpayer's principal residence. The taxpayer appealed on the basis that the area of his suite was approximately one-seventh of the total area of the building and that the exemption therefore should have been one-seventh. In addition he argued (courageously) that the whole of the gain on the value of the land should be exempted because the land under and around the apartment block contributed to the use and enjoyment of the unit occupied by him as his principal residence.

The Tax Review Board accepted his argument that using area rather than number of units as a criteria for determining the amount of the exemption was correct in the circumstances of this case. Since the taxpayer shared the enjoyment of the land with the tenants in the apartment block, it rejected his claim that the whole of the gain could be attributed to his principal residence exemption. He was allowed a one-seventh exemption on the gain in the value of the building and land.2

  1. Her Majesty the Queen v. Yates Federal Court of Canada, Trial Division T-4485-81.
  2. Berkovic v. MNR, 83 DTC335.

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