Prinipal Residence on 13 acre parcel

The tax payer’s principal residence is on a non-subdividable 13 acres. It’s out of the way, and off the grid. Would it all be accepted as the principal residence on the basis of “required for the use and enjoyment of his principal residence”?

Yes. I would unless they are using 12 acres to grow produce.

CRA has made it very clear that only 1.24 acres are part of the PR exemption. Therefore the remaining acres should have a cost and sale value allocated, likely creating a capital gain.

The courts don’t always see things the same way as the CRA

83 DTC 5158 (Queen vs Yates)
95 DTC 5483 (Carlisle vs Queen)
93 DTC 5205 (Augart vs Queen)

There have been several instances where more than the house and one hectare qualify for the PRE, especially in instances (or during the years) where the taxpayer was prohibited from severing any part of the land in excess of 1 hectare.


I guess then it is based on the risk tolerance of the client and being aware CRA may challenge it.

It is a Date of Death return, so with all the issues around probate and beneficiaries I’d have to recommend no risk be taken. I could request a ruling, any thoughts?

IIRC, CRA will not issue a ruling on a completed transaction (which this is). File in the Executor’s chosen manner (as it is the Executor who is liable), and withhold enough funds to cover the maximum tax, interest and penalty cost, if CRA decides to audit and reassess - which also doesn’t mean you can’t appeal.

Read the tax cases though and make a determination of where your case is the same and where it is distinguished from those you read. (CanLii is great for this!) We filed a number of years ago in a similar case, holding all the land as PR, received the assessment, filed the TX19 and received the Clearance Cert without further ado.

FWIW, “not risking” could also cause liability to fall on you as the consultant if eventually the heirs decide they don’t like how the tax was handled when Passing of Accounts is done. Lay out - fairly and equitably - both sets of choices and let the Executor choose. If it’s too close to tell, find a good tax lawyer.

1 Like

Your answer may depend on the amount of the gain on the excess acreage. Other considerations would also include looking at that severance restriction and whether it has applied to the property in all years of ownership. Also, look at the zoning of the property. Has it always been residential or has it been or is it zoned for some commercial use, too?

I assume you’ll discuss how to file with the executor(s). I would recommend claiming it if you have a reasonable basis for deducting some/all of the excess land as being eligible for the PRE. Assuming the Estate will apply for a clearance certificate, you will have an answer to CRA’s position relatively quickly. I also assume the Estate will hold back sufficient funds to pay the add’l tax should CRA’s review limit the claim to the 1 hectare of sub-adjacent land. In that respect, the risk might be acceptable.

"…and, for the purpose of this definition,
• (e) the principal residence of a taxpayer for a taxation year shall be deemed to include, except where the particular property consists of a share of the capital stock of a co-operative housing corporation, the land subjacent to the housing unit and such portion of any immediately contiguous land as can reasonably be regarded as contributing to the use and enjoyment of the housing unit as a residence, except that where the total area of the subjacent land and of that portion exceeds 1/2 hectare, {=1.23553 acre} the excess shall be deemed not to have contributed to the use and enjoyment of the housing unit as a residence unless the taxpayer establishes that it was necessary to such use and enjoyment, "
13 acres {=5.26091 hectares}?
Very tough hill to climb to “establish” it for “necessary” .
IMHO the Executor would have to work very very hard at gathering evidence to make that case.
“Yes, your honor, the necessary bathroom is just down there, at the bottom of the hill…”

If the property cannot be severed, the excess acreage is worthless except as part of the principal residence. What is it worth if it can’t be severed? I hear what you are saying about a tough hill, but either it is part of the principal residence or it is worthless - either way there are no tax consequences, I would argue. Having said all that, I bow to the collective wisdom expressed in earlier posts.

Thank you all for pitching in. An interesting topic. I do believe it should be filed as “required for the use and enjoyment” with no Capital Gain, but I will advise the Executor of the potential for CRA disagreement and the possibility of Tax Court. Then she can decide.

I so appreciate having the opportunity to use this forum, it is the best.


1 Like

If the deed of sale details $XXX for the residence and $X for the land, and the buyer is at arm’s length, CRA will accept it. Larger principal residence exemption and smaller capital gain on land.

1 Like