3 April 2001 External T.I. 2001-0064035 - DISPOSITION OF LAND QFP

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Whether farm land meets definition of Qualified Farm Property if individual is not actively involved on a regular and continuous basis in farming business at time of sale.

Position: Question of Fact. It is not necessary that this test be met at time of sale, but rather for any 24 month period while the individual owned the property.

Reasons: Wording in clause (a)(vi)(A) of definition of QFP in 110.6(1). Consistent with other opinions.

		2001-006403
XXXXXXXXXX 	Wayne Antle, CGA
(613) 957-2102
April 3, 2001

Dear XXXXXXXXXX:

Re: Disposition of Farm Land

This is in response to your letter dated January 4, 2001 concerning whether your farm land would be considered "qualified farm property" as defined in subsection 110.6(1) of the Income Tax Act (the "Act").

You have summarized the facts as follows:

You own farm land that you acquired after June 17, 1987. The income generated from the land was your main source of income for at least two years while you owned the land, although is it is not currently your chief source of income. The land is now being farmed under an arrangement between you and your neighbour whereby you pay for one-third of the input costs, and receive one-third of the crop to sell at your own discretion. Your neighbour supplies the machinery and labour for the farming operation. You are involved in ongoing discussions with your neighbour concerning various aspects of the farming operation such as whether to seed or summer fallow, what to seed, how to fertilize, and how to treat pests and weeds.

You are considering selling the farm land, and wish to determine if the property is "qualified farm property" as defined in subsection 110.6(1) of the Act. It is your understanding that, in order for the farm land to meet the definition, you must be "actively engaged on a regular and continuing basis" in the business of farming at the time the land is sold.

Our Comments

The particular circumstances in your letter on which you have asked for our views appear to be a factual situation involving a transaction that you are proposing to undertake. As explained in Information Circular 70-6R4, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. However, we are prepared to offer the following general comments, which may be of some assistance to you.

In our view, it is not necessary that you be actively engaged on a regular and continuous basis in the farming business at the time the property is sold. The farm land would be considered "qualified farm property" if, for any period of at least 24 months while you owned it, the property was used principally in the business of farming in Canada, you were actively engaged on a regular and continuous basis in the farming business, and the gross revenue that you earned from the farming business exceeded your gross revenue from all other sources.

The determination of whether real property is used principally by a taxpayer in carrying on a farming business is a question of fact. Where reference is made to an asset being used principally in the business of farming, the asset will meet this requirement if more than 50% of the asset's use is in the business of farming. Furthermore, it is also a question of fact whether a particular farming operation constitutes a farming business at any particular time. Some of the criteria, which should be considered in making this determination, are set out in Interpretation Bulletin IT-322R. In addition, the general position of the Canada Customs and Revenue Agency ("CCRA") with respect to the meaning of a farming business is outlined in paragraph 8 of Interpretation Bulletin

IT-433R and paragraph 7 of Interpretation Bulletin IT-145R (Consolidated).

Paragraph 27 of Interpretation Bulletin IT-268R4 reflects the CCRA's interpretation of actively engaged on a regular and continuous basis. Paragraph 27 states that it must be determined on the facts of each case whether a particular person is actively engaged on a regular and continuous basis in the business of farming. Further, that paragraph indicates the requirement is considered to have been met when the person is actively engaged in the management and/or day-to-day activities of the farming business. Ordinarily, the person would be expected to contribute time, labour and attention to the business to a sufficient extent that such contributions would be determinant in the successful operations of the business. Whether an activity is considered to be carried out on a regular and continuous basis is also a question of fact, but an activity that is infrequent or activities that are frequent but undertaken at irregular intervals would not meet the requirement. When farming is not the chief source of income of a taxpayer, it may be more difficult to demonstrate that the taxpayer was actively engaged on a regular and continuous basis in the farm business.

The above-noted interpretation bulletins are available on our website at

www.ccra-adrc.gc.ca.

We trust that our comments will be of assistance.

Yours truly

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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