The definition of principal residence for tax functions
In keeping with the CRA, to ensure that a property to qualify as a principal residence, it have to be:
- A housing unit, which may embrace a home, a rental, a cottage, a cellular residence, a trailer, a houseboat, a leasehold curiosity in a housing unit, or a share of the capital inventory of a co-operative housing company;
- Owned by the taxpayer, collectively or in any other case, legally or beneficially;
- Ordinarily inhabited within the yr by the taxpayer, their partner or common-law associate, their former partner or former common-law associate, or baby.
There might be nuances within the principal residence tips which will impression your capacity to qualify for the exemption. Some examples are if your property was rented out or used for enterprise functions, if the acreage is critical, or if you happen to owned one other property throughout the identical years that you just owned the property in query and claimed the principal residence exemption for it.
Authorized vs. useful possession of a property
An essential nuance for you, Invoice, is whether or not your daughter beneficially owned the property. If she did—that means you have been on title, however it was technically hers—she could possibly declare the principal residence exemption herself. This may very well be the case if she paid all the ongoing bills, amongst different standards. However then the query could also be the place did the down fee come from, and if the property was in actual fact beneficially your daughter’s, however legally in your identify, why did the 2 of you not put it in her identify within the first place?
The CRA speaks about authorized and useful possession in a 2016 interpretation bulletin:
“In frequent regulation jurisdictions, two types of property possession are acknowledged – authorized and useful. Usually ‘authorized possession’ exists when title is transferred to, recorded in, registered in, or in any other case carried within the identify of an individual. Authorized house owners are usually entitled to implement their possession rights towards all different individuals. In distinction, the time period ‘useful possession’ is used to explain the kind of possession of an individual who’s entitled to the use and good thing about the property whether or not or not that individual has concurrent authorized possession.”
I’m going to exit on a limb right here and assume that the property was primarily yours, Invoice, even when your daughter chipped in and paid a number of the bills. On this case, you possibly can declare the principal residence exemption on its sale, given it was ordinarily inhabited by your baby. However doing so would trigger your individual residence to be taxable sometime. This may not be nearly as good of an end result as having her declare the principal residence exemption herself.
Principal residence exemption tips
To maintain issues easy, say you got your own home and her rental in the identical yr. You promote her rental after proudly owning it for 10 years and declare the principal residence exemption. After which assume you promote your own home after 20 years of possession. You may solely declare one property as your principal residence in a given yr, so you’d solely have the ability to declare a tax-free capital acquire on your own home for 10 of the 20 years (half the interval). For the opposite 10 years, the principal residence exemption was used in your daughter’s rental.
If the property was bought in your daughter’s identify initially, she might have claimed the principal residence exemption. You might have loaned her the cash for the down fee to guard your curiosity. However typically, banks will make youngsters signal a letter stating that the dad or mum’s contribution is a present to guard the financial institution’s personal place as the first lender on the property. And there could also be different causes you had the property in your identify as an alternative of hers.
Do you have to declare the principal residence exemption on a property your baby lives in?
The purpose is you can not have your cake and eat it too. You can’t declare a principal residence on a property wherein your baby lives whether it is legally or beneficially yours with out compromising your individual capacity to assert a principal residence exemption on your property for a similar years.