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, where the capital gains election is filed in respect of property which qualifies as "qualified farm property", the property will continue to qualify as such.
2.Whether, where the capital gains election is filed in respect of shares which qualify as "qualified small business corporation shares", the shares will continue to qualify as such.
Position TAKEN:
1.Question of fact.
2.The shares will continue to qualify as "qualified small business corporation shares".
Reasons FOR POSITION TAKEN:
1.If the capital gains election is filed in respect of qualified farm property, the property will be considered to have been last acquired after June 17, 1987. In certain situations, the property may continue to meet the definition of "qualified farm property" notwithstanding the new acquisition date, if, in at least 2 years while the property was owned by one of the persons described in subparagraphs (a)(i) to (iii) of the definition or by a personal trust from which the individual acquired the property, the gross revenue of such a person from the farming business in which the property was principally used and in which the person was actively engaged on a regular and continuous basis exceeded his or her income from all other sources for the year.
2.The tests to be satisfied in order to qualify as "qualified small business corporation shares" do not hinge upon the acquisition date of the shares. Instead, the shares must, according to paragraph (b) of the definition, not be owned by anyone other than the individual claiming the exemption or a person or partnership related to such an individual throughout the 24 months immediately preceding the disposition of the shares. The capital gains election has no bearing on the determination of the 24 month holding period since it does not result in a change of ownership of the shares.
5-950787
XXXXXXXXXX C. Chouinard
Attention: XXXXXXXXXX
April 18, 1995
Dear Madam:
Re: Capital Gains Election - Qualified Farm Property
We are writing in response to your letter of March 21, 1995, addressed to the Edmonton Tax Services office, which was forwarded to us for reply.
You ask us to confirm that the opinion set out in an article you submitted is correct. The article in question deals with the capital gains election as it applies to qualified farm property. The author of the article states that, if an individual files the capital gains election in respect of qualified farm property, since subparagraph 110.6(19)(a)(ii) of the Income Tax Act (the "Act") deems property in respect of which an election has been filed to have been reacquired after February 22, 1994, the qualified farm property would be considered to have been last acquired after June 17, 1987 for purposes of the definition of "qualified farm property" and may thus no longer qualify as "qualified farm property".
The article also explains that, although a new acquisition date also arises where the capital gains election is filed in respect of "qualified small business corporation shares", it is of no consequence since the 24 month holding period test found in the "qualified small business corporation shares" definition is not concerned with the acquisition date of shares.
When the capital gains election is filed in respect of capital property, the property is, pursuant to subparagraph 110.6(19)(a)(ii) of the Act, deemed to have been reacquired by the elector immediately after February 22, 1994. Therefore, in our opinion, if the capital gains election is filed in respect of qualified farm property, the property will be considered to have been last acquired after June 17, 1987. However, the fact that the capital gains election gives rise to a new acquisition date does not necessarily mean that property which previously qualified as "qualified farm property" will no longer qualify as such. Although an individual who acquired farm property after June 17, 1987 may not have farmed the property since he or she acquired it, in our opinion, the person meeting the gross revenue test in subparagraph (a)(vi) of the definition of "qualified farm property" need not be the person who owns the property and may be any of the persons described in subparagraphs (a)(i) to (iii) of the definition of "qualified farm property". Therefore, in certain situations, the property may continue to meet the definition of "qualified farm property" notwithstanding the new acquisition date, if, in at least 2 years while the property was owned by one of the persons mentioned above or by a personal trust from which the individual acquired the property, the gross revenue of such a person from the farming business in which the property was principally used and in which the person was actively engaged on a regular and continuous basis exceeded his or her income from all other sources for the year.
There may, however, be situations where, as a result of filing the capital gains election, property which constitutes "qualified farm property" ceases to qualify as such since it fails to meet the gross revenue test found in the "qualified farm property" definition. For instance, farm property acquired by an individual prior to June 18, 1987 which, since its acquisition, has been farmed by the individual while he or she was employed in another capacity, would qualify as "qualified farm property" since it would have been used principally in the course of carrying on the business of farming in Canada in at least five years during which it was owned. However, if the capital gains election were filed in respect of this property, it might no longer qualify as "qualified farm property" since the individual might not meet the gross revenue test of subparagraph (a)(vi) of the definition of "qualified farm property", which generally applies to property acquired after June 17, 1987.
As regards "qualified small business corporation shares", you will note from the definition of this expression in subsection 110.6(1) of the Act, that the tests to be satisfied in order to qualify as "qualified small business corporation shares" do not hinge upon the acquisition date of the shares. Instead, the shares must, according to paragraph (b) of the definition, not be owned by anyone other than the individual claiming the exemption or a person or partnership related to such an individual throughout the 24 months immediately preceding the disposition of the shares. When the capital gains election is filed in respect of "qualified small business corporation shares", they are deemed to have been disposed of and reacquired by the same individual. Therefore, the capital gains election has no bearing on the determination of the 24 month holding period since it does not result in a change of ownership of the shares.
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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