The definition of principal residence for tax functions
In accordance with the CRA, to ensure that a property to qualify as a principal residence, it have to be:
- A housing unit, which may embody a home, a apartment, a cottage, a cellular dwelling, 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 12 months by the taxpayer, their partner or common-law associate, their former partner or former common-law associate, or baby.
There may be nuances within the principal residence tips which will influence your means to qualify for the exemption. Some examples are if your private home was rented out or used for enterprise functions, if the acreage is important, or in the event you 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. helpful possession of a property
An vital 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 might be able to 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 cost come from, and if the property was in truth beneficially your daughter’s, however legally in your title, why did the 2 of you not put it in her title within the first place?
The CRA speaks about authorized and helpful possession in a 2016 interpretation bulletin:
“In widespread regulation jurisdictions, two types of property possession are acknowledged – authorized and helpful. Usually ‘authorized possession’ exists when title is transferred to, recorded in, registered in, or in any other case carried within the title of an individual. Authorized homeowners are usually entitled to implement their possession rights in opposition to all different individuals. In distinction, the time period ‘helpful 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 few of the bills. On this case, you can declare the principal residence exemption on its sale, given it was ordinarily inhabited by your baby. However doing so would trigger your individual dwelling to be taxable sometime. This is able to not be nearly as good of an consequence as having her declare the principal residence exemption herself.
Principal residence exemption tips
To maintain issues easy, say you purchased your own home and her apartment in the identical 12 months. You promote her apartment 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’ll be able to solely declare one property as your principal residence in a given 12 months, so you’d solely be capable of declare a tax-free capital achieve 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 apartment.
If the property was bought in your daughter’s title initially, she might have claimed the principal residence exemption. You can have loaned her the cash for the down cost to guard your curiosity. However typically, banks will make children signal a letter stating that the mother or father’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 title 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’t have your cake and eat it too. You can not declare a principal residence on a property during which your baby lives whether it is legally or beneficially yours with out compromising your individual means to say a principal residence exemption on your private home for a similar years.