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 real property can qualify as "qualified farm property" within the meaning of subsection 110.6(1) of the Income Tax Act (the "Act") where restricted farm losses have been reported.
Position TAKEN:
It is always a question of fact whether a farming business has been carried on. However, the fact that section 31 of the Act may have application to restrict the amount of a farming loss does not, in and by itself, mean that a farming business was not carried on for purposes of the definition of "qualified farm property".
Reasons FOR POSITION TAKEN:
The application of section 31 of the Act to restrict the amount of a farm loss, in effect, recognizes that a farming business was carried on with a reasonable expectation of profit, otherwise, the loss would have been denied in full. Section 31 recognizes the loss as being on account of carrying on a business of farming but merely restricts the loss because the taxpayer's chief source of income is not farming.
5-951001
XXXXXXXXXX C. Chouinard
April 24, 1995
Dear Sir:
Re: Capital Gains Election - Qualified Farm Property
We are writing in response to your letter of April 12, 1995, wherein you inquired whether real property owned by you and your spouse would qualify as "qualified farm property" within the meaning of subsection 110.6(1) of the Income Tax Act (the "Act"). You are concerned that a business of farming would not be considered to have been carried on due to the fact that you have reported restricted farm losses over six taxation years.
You indicate that the property
XXXXXXXXXX
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.
One of the conditions that must be met for a property to be considered a "qualified farm property" within the meaning of subsection 110.6(1) of the Act, is that the property be used in the course of carrying on the business of farming in Canada. It is always a question of fact whether a farming business has been carried on. However, the fact that section 31 of the Act may have application to restrict the amount of a farming loss does not, in and by itself, mean that a farming business was not carried on for purposes of the definition of "qualified farm property". The application of section 31 of the Act to restrict the amount of a farm loss, in effect, recognizes that a farming business was carried on with a reasonable expectation of profit, otherwise, the loss would have been denied in full. Section 31 recognizes the loss as being on account of carrying on a business of farming, but merely restricts the loss because the taxpayer's chief source of income is not farming.
Property acquired before June 18, 1987 will qualify as "qualified farm property" provided it was used by the person claiming the capital gains exemption, a spouse, child or parent of such a person, a family farm corporation in which any of the above persons own shares, a family farm partnership in which any of the above persons have an interest or a personal trust from which the individual acquired the property, principally in carrying on the business of farming in Canada, either in the year the property is disposed of, or in at least five years (which need not be consecutive) during which it was owned by the individual, a spouse, child or parent of the individual, a personal trust from which the individual acquired the property or a family farm partnership.
It is not clear from your letter whether the property was principally used in the course of carrying on a farming business. Property will meet this test where more than 50% of its use is in the business of farming. Accordingly, we cannot determine whether the property would qualify as "qualified farm property". However, if the property was so used, it may qualify as "qualified farm property", since you and your spouse appear to have used the property in your orchard business in at least five years during which the property was owned.
If you file the capital gains election in respect of your property, you will be deemed to have disposed of and immediately reacquired the property after February 22, 1994. Therefore, the property would be considered to have been last acquired after June 17, 1987. Where property was acquired after June 17, 1987, the definition of "qualified farm property" in subsection 110.6(1) of the Act requires that the property in question have been owned by the taxpayer, his or her spouse, any of his or her children, or his or her parents throughout the 24 months preceding the sale. Furthermore, in at least 2 years while the property was so owned, the gross revenue from the farming business carried on by the person must have exceeded his or her income from all other sources for the year. In our opinion, the person meeting the gross revenue test need not be the person who owns the property and may be any of the persons described above. Therefore, in your situation, if you filed the capital gains election in respect of your property, the property would cease to qualify as "qualified farm property", since it appears that you would not meet the gross revenue test mentioned above.
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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