2023-0990221E5 Principal Residence Exemption-Condo parking Spaces

Principal Issues: Whether a housing unit (that is a condo), for purposes of the definition of principal residence in section 54, could include parking spaces which are located in a different location than the housing unit, such that all or a portion of any gain on the disposition of the parking space would be exempt pursuant to paragraph 40(2)(b).

Position: Whether the parking spaces can reasonably be regarded as contributing to the use and enjoyment of the housing unit as a residence for individuals, is a question of fact. Such a determination can only be made after a review of all the facts and circumstances of the taxpayer's situation. Based on the information provided, and assuming that the parking spaces are capital property, in applying the facts to the meaning of housing unit, it is possible that the parking spaces form part of the housing unit.

Reasons: See analysis.

Author: Neave, Troy
Section: 40(2)(b), 54 - Definition of Principal Residence

XXXXXXXXXX                                                                  2023-099022
                                                                                         Troy Neave

July 15, 2024

Dear XXXXXXXXXX:

Re: Principal residence exemption – condo parking space

This is in reply to your letter of September 3, 2023, wherein you requested our views on whether, for purposes of the principal residence exemption in paragraph 40(2)(b) of the Income Tax Act (the “Act”), the gain on the disposition of parking spaces within a condominium building could be reduced or eliminated, where the condominium unit is a principal residence. In the hypothetical scenario provided, a taxpayer acquires a condominium unit (the “Condo”) and one parking space (the “First Parking Space”) in 2017, then acquires a second parking space (the “Second Parking Space”) on separate title in 2020 in the same building complex. Parking spaces may only be owned by residents of the building complex.

The two parking spaces were sold at different times and to different purchasers. The First Parking Space was sold along with the sale of the Condo and the Second Parking Space was sold separately from the sale of the Condo. Both parking spaces were used for personal use by either the taxpayer or the taxpayer’s spouse.

Our Comments

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R12, Advance Income Tax Rulings and Technical Interpretations.

The CRA's general views on claiming the principal residence exemption are set out in Income Tax Folio S1-F3-C2, “Principal Residence” (the “Folio”). If a property qualifies as a taxpayer's principal residence, he or she can use the principal residence exemption to reduce or eliminate any capital gain otherwise occurring, for income tax purposes, on the disposition (or deemed disposition) of the property.

In general, the principal residence exemption is claimed under paragraph 40(2)(b) of the Act. The term “principal residence” is defined in section 54 of the Act and provides the conditions which must be met for a property that is a housing unit to qualify as a principal residence. The term “housing unit” is not defined in the Act. As per paragraph 2.7 of the Folio, the CRA has accepted that a housing unit includes: a house; an apartment or unit in a duplex, apartment building or condominium; a cottage; a mobile home; a trailer; or a houseboat.

Facilities such as an attached garage, a detached garage, a shed, and parking spaces cannot be considered a housing unit on their own. Since the meaning of the term “housing unit” is broad, then it is our view that a facility, such as a parking space, may be a component of a housing unit provided that facility can reasonably be regarded as contributing to the use and enjoyment of the housing unit as a residence for individuals.

The determination of whether a facility like a parking space is a component of a housing unit can only be made after a review of all the facts and circumstances of a taxpayer's situation. However, based on the information provided, it is our view that the First Parking Space is a component of the housing unit (i.e., the Condo). In addition, the fact that the Second Parking Space is on separate title and sold to a different purchaser from the Condo would not in and of itself preclude the second parking space from being included as a component of the housing unit. Furthermore, because the Second Parking Space is on separate title from the Condo, it is our view that the Condo and parking spaces must be owned by the same person to be considered as a component of the housing unit. Thus, provided that all the other required conditions of the principal residence exemption are met, a portion of, or all of, the gain realized on the disposition of the parking spaces may be exempt pursuant to paragraph 40(2)(b).

We trust our comments will be of assistance.

Yours truly,

Sandro D’Angelo, CPA, CMA
Section Chief, Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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