In my last blog, I wrote about the role of “beneficial” ownership in the determination of whether a property qualifies for the principal residence exemption.
With an acknowledgment to Keith Masterman of “Advisor.ca”, I thought I would take the opportunity to write about some other “what if’s” and how the exemption may or may not apply. As an executor or trustee, you may encounter these scenarios and it might be of assistance to be at least be aware how they may impact the principal residence exemption claim.
What if the Property includes several acres of land?
This has been discussed in previous blogs. The bottom line appears to be if you plan to claim the exemption for the entire property, you have to have solid support to show that the entire property was needed to maintain a principal residence (good starting point would be that it could not be subdivided) for each year the exemption is being claimed.
What if the Property is being rented?
To qualify for the exemption, a property must be occupied for personal use and not for business or commercial use. If a portion of the residence was rented for instance to generate income, the principal residence exemption may be lost on that portion of the property.
A notable exception to this rule may apply if the rental is secondary to the use of the property as a residence, there is no structural change made to the property, and no tax depreciation is claimed on the property. Also, where a residence is rented to the owner’s child (even at below fair market value) who occupies the home as his or her residence, the owner can still normally designate the home as a principal residence.
What if the Property is a new Condo unit?
Condominiums often have three time periods associated with ownership: the period of construction, an interim occupancy period and the period after the unit’s title is actually registered to the owner. Even though an ownership interest in the unit can be established during all three periods, it is only when actual title registration occurs, that the condo is considered to be “owned” for purposes of claiming the principal residence exemption. If the condo unit is sold before intial title registration, the condo is not considered to be a principal residence for the purposes of the exemption.