29 April 2002 External T.I. 2002-0127345 - FARMING - SEPARATE BUSINESS

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:

Would income earned from XXXXXXXXXX on a farm be considered income incidental to farming or income from a separate business?

Position TAKEN:

Question of fact. General information provided.

Reasons:

Question of fact.

XXXXXXXXXX 2002-012734
T. Young, CA
April 29, 2002

Dear XXXXXXXXXX:

Re: Farming - Incidental Income

This is in reply to your facsimile of March 5, 2002, requesting a ruling on whether income earned by XXXXXXXXXX would qualify as farming income.

In your facsimile, you stated that you purchased your farm in XXXXXXXXXX You have been advised that this may take XXXXXXXXXX years.

You have also planted approximately XXXXXXXXXX, which will take approximately XXXXXXXXXX years to mature.

While you are waiting for the two crops to mature, you propose to XXXXXXXXXX. Your goal is to gross approximately $XXXXXXXXXX annually from the XXXXXXXXXX. You have asked us for a ruling confirming that the income from the XXXXXXXXXX would be considered incidental to the income generated from the sale of your other farm products - XXXXXXXXXX - in XXXXXXXXXX years.

Our Comments

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 70-6R4, Advance Income Tax Rulings, dated January 29, 2001. Therefore, we can only provide you with the following general comments.

Whether the XXXXXXXXXX is part of a farming operation or a separate business is a question of fact dependent upon the circumstances of the case. In general terms, if the businesses are so interlaced, interdependent and interconnected that it is virtually impossible to separate one operation from the other, then there is only one business being carried on.

Generally, we will consider certain non-farming activities to be part of the farming operation where:

(i) the taxpayer carries on a bona fide farming operation;

(ii) the activities are related to the taxpayer's other farming activities;

(iii) the activities are undertaken on a small scale; and

(iv) the income generated by these activities is incidental to the taxpayer's other farming revenue.

If the involvement in "non-farming" activities goes beyond the above guidelines, we would consider these activities to be a separate business from that of the farming operation. For more information on what constitutes a separate business, refer to interpretation bulletin IT-206R, Separate Businesses.

The publications referred to in this letter may be obtained from your local tax services office or from our Internet web site (www.ccra-adrc.gc.ca/tax/technical/menu-e.html).

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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