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:
1.Whether the capital gains reserve of subparagraph 40(1)(a)(iii) can be claimed where a taxpayer transfers a property to a partnership pursuant to subsection 97(1) of the Act.
2.Whether an interest in a partnership must have been held for at least 24 months in order to qualify as an "interest in a family farm partnership" within the meaning of subsection 110.6(1).
Position TAKEN:
1.Capital gains reserve cannot be claimed.
2.Although partnership must have been in existence for at least 24 months, there is no such requirement as regards the partnership interest.
Reasons FOR POSITION TAKEN:
1.According to the Derlago v. The Queen, 88 DTC 6290 (F.C.T.D.) case, where a provision in the Act deems property to have been disposed of for certain proceeds, the proceeds are considered to have been received by the taxpayer at the time of, or immediately after, the disposition.
2.If a partnership has not been in existence for at least 24 months, it cannot meet the "throughout any 24 month period ending before" condition in paragraph (a) of the definition of "interest in a family farm partnership". There is no requirement in the definition that the interest be held for a given period of time.
5-943011
XXXXXXXXXX C. Chouinard
March 31, 1995
Dear Sir:
Re: Subsection 110.6(1) and Paragraph 40(1)(a) of the Income Tax Act
We are writing in response to your letter of November 15, 1994, wherein you requested our comments on the capital gains reserve of subparagraph 40(1)(a)(iii) of the Income Tax Act (the "Act") and the definition of "interest in a family farm partnership" in subsection 110.6(1) of the Act.
As regards the capital gains reserve, you enquire whether the reserve can be claimed where an individual transfers property to a partnership pursuant to subsection 97(1) of the Act and receives as consideration a promissory note payable over 5 years. Your second query relates to the 24 month period referred to in the definition of "interest in a family farm partnership". More specifically, you enquire whether a partnership in which an interest is held must have been in existence for at least 24 months in order to qualify as an "interest in a family farm partnership".
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R2. The following comments are, therefore, of a general nature only, and are not binding on the Department.
Capital Gains Reserve
Where property is transferred to a partnership under subsection 97(1) of the Act, the taxpayer is deemed to have disposed of the property for proceeds equal to the fair market value of the property and the partnership is deemed to have acquired it at that same amount. In light of the decision in the Derlago v. The Queen, 88 DTC 6290 (F.C.T.D.) case, we are of the view that the deemed proceeds of disposition prescribed by subsection 97(1) of the Act are received by the taxpayer from the partnership at the time of the disposition. Accordingly, since no portion of the deemed proceeds of disposition are considered to be received at a time other than the time of disposition, a capital gains reserve under subparagraph 40(1)(a)(iii) of the Act cannot be claimed in respect of the capital gains arising on the disposition of the property. This is the position the Department adopted in the May 1993 letter you refer to.
Interest in a Family Farm Partnership
To qualify as an "interest in a family farm partnership" as defined in subsection 110.6(1) of the Act, the partnership in which the interest is held must have been in existence for at least 24 months. If the partnership has not been in existence for at least 24 months, it cannot meet the "throughout any 24 month period ending before" condition in paragraph (a) of the definition. The expression "throughout any 24 month period" is in sharp contrast to the expression "that part of the 24 months" in the definition of "qualified small business corporation share". "That part of the 24 months" contemplates a period of 24 months or less, whereas "throughout any 24 month period" requires a 24 month period. However, unlike the definition of "qualified small business corporation share", there is no requirement in the definition of "interest in a family farm partnership" that the interest be held for a given period of time. Accordingly, in our view, provided a partnership has been in existence for at least 24 months, an interest in such a partnership may qualify as an "interest in a family farm partnership", regardless of the amount of time the interest has been held by the individual, if all the other requirements of the definition are met.
The issue in the August 1993 letter you refer to was whether "the period of at least 24 months immediately preceding that time", as mentioned in subparagraph 110.6(1)(a)(vi) of the definition of "qualified farm property", contemplates successive ownership of the property during the relevant 24 month period. In response to this query, we indicated that the ownership requirement "of at least 24 months immediately preceding" the time of sale would be met as long as all the persons owning the property during the 24 months are persons described in the "qualified farm property" definition.
We trust that these comments will be of assistance.
Yours truly,
R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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