All About Estates

Principal Residence – Duplex or Intergenerational House

The Canada Revenue Agency (CRA) was asked if a duplex occupied by a taxpayer and her aging parent could be treated as the daughter’s (taxpayer) “principal residence” for the purpose of claiming the principal residence exemption from the capital realized on the sale of the duplex at a later date.

It was also asked if the answer would be the same if the duplex was owned by the parent instead of the daughter. Finally, it was asked if the answer would be different if the house was an intergenerational house with one civic address but separated spaces inside the house. Each unit has its own bedroom, kitchen, bathroom, living room, civic address, and hydro meter, and the duplex was renovated to add an internal access between the units. Both the taxpayer and aging parent took most of their meals together in the same unit.

In their response, the CRA confirmed that the two duplex units would not constitute one principal residence for the purpose of claiming the principal residence exemption even if there was internal access between the units and if the taxpayer and aging parent took most of their meals together. The answer will be the same if the duplex is owned by the parent or is an intergenerational unit.

The question of whether two duplex units are a single or two separate units for the purpose of the definition of “principal residence” is a question of fact. Two duplex units are considered a single housing unit if they are so integrated that it is impossible to normally live in one unit without having access to the other one and its installations. The two units would not constitute a single housing unit if each unit could be inhabited without major renovation or access to the other one (e.g, if each unit had a kitchen and bathroom, and a separate exterior access). The existence of separate ownership titles, separate civic addresses, separate entrance doors, and separate public service accounts would also be considered to determine the existence of a single housing unit.

The fact that most meals were taken together in one unit and that there was an internal access door between the two units was not significant to determine if there was only one housing unit. The fact that each unit had its own separate bedroom, kitchen, bathroom, civic address, and hydro meter was much more significant and indicative of two separate housing units.

The answer would be exactly the same if the duplex was owned by the aging parent. The answer could be different in the case of an intergenerational house but the CRA need a more detailed description of the residence before deciding if there is only one unit. The fact that the intergenerational house has a single civic address would not be sufficient in itself to prove the existence of a single housing unit.

We are seeing a greater trend toward generations under one roof as families gather to support the elderly and disabled. Care must be taken in the decision to access the principal residence exemption in these circumstances.

About Derek de Gannes
Derek A. de Gannes: Director, Domestic & International Tax of RSM Canada. RSM Canada is committed to the highest level of integrity, quality and professionalism and provides clients with solutions in the area of Audit, Tax and Transaction Services. Email: derek.degannes@rsmcanada.com