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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues:
Whether the sale of farmland qualifies for the capital gains deduction in a particular situation.
Position:
Question of fact; however, it may qualify in this case.
Reasons:
Since the property was acquired by the taxpayers prior to 1987, and may have been farmed by a parent (as defined in paragraph 252(2)(a) of the Act) for several years, it will likely qualify under subparagraph (a)(vii) of the definition of "qualified farm property" in subsection 110.6(1) of the Act. However, it will have to be determined:
? If when the parent owned the property it was used more than 50% of the time in the course of carrying on a farming business in Canada for at least five years, and
? If that activity would be considered farming as defined in subsection 248(1) of the Act.
XXXXXXXXXX 2002-012080
Randy Hewlett, B.Comm.
February 20, 2002
Dear XXXXXXXXXX:
Re: Technical Interpretation - Qualified Farm Property
We are writing in response to your letter dated January 21, 2002, wherein you requested our opinion on whether the sale of your farm property qualifies for the capital gains deduction.
Your letter indicates that you and your wife purchased the farm property from your mother in 1975. Prior to that time your father farmed the property. Since 1975, your mother lived in the family farmhouse and the land was rented to a third party who farmed the property. In 2001, the property was sold to your niece.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R4, Advance Income Tax Rulings, dated January 29, 2001. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.
Where a "qualified farm property," as defined in subsection 110.6(1) of the Income Tax Act (the Act), is disposed of and a capital gain does result, subsection 110.6(2) provides for a capital gains deduction. Under the definition, "qualified farm property" may include certain land, but not depreciable property, such as barns and equipment.
Based on the information provided, the land may be considered "qualified farm property" by virtue of subparagraph (a)(vii) of the definition, which applies generally to land acquired before June 18, 1987. However, it will have to be determined:
? Whether or not when your father owned the property, he used it principally in the course of carrying on a farming business in Canada for at least five years, and
? If that activity would be considered "farming".
If these conditions are met, the portion of the land owned by your wife will also be considered "qualified farm property" since your father is also considered her parent by virtue of paragraph 252(2)(a) of the Act, which defines certain relationships for purposes of the Act.
The land will be considered used principally in the course of farming if more than 50% of the total property is used in the business of farming. For further assistance in determining if a particular activity is farming, you may wish to consult Interpretation Bulletin IT-433R Farming or Fishing - Use of Cash Method, dated June 4, 1993. As noted in IT-433R, farming generally includes (a) the tillage of soil, (b) the raising or exhibiting of livestock, (c) the maintenance of horses for racing or exhibiting, (d) the raising of poultry, (e) the keeping of bees, (f) fur farming, (g) dairy farming, and (h) fruit growing.
Since your specific situation involves an interpretation of relatively complex provisions of the Act, consideration should be given to consulting professional legal or accounting advice. The interpretation bulletin noted above can be found on our website at http://www.ccra-adrc.gc.ca. We trust our comments will be of assistance to you.
Yours truly,
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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