18 April 1996 Internal T.I. 9611637 - WGTPP

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:

Treatment of WGTPP payments received by residents and non-residents

Position:

Grinds to ACB of farmland

Reasons:

Paragraph 53(2) of Income Tax Act and paragraph 4(a) of WGTPP Act.

		961163
XXXXXXXXXX	A.M. Brake

April 18, 1996

Dear XXXXXXXXXX:

Re: Western Grain Transition Payments Program ("WGTPP")

This is in reply to your letter of March 11, 1996, addressed to the Winnipeg Taxation Centre, which was forwarded to us for reply. The following scenario was described:

Farmer "X" acquired farmland prior to 1972 and retained possession up to the time of his death in 1994 when the land was transferred to his wife, who is a Canadian citizen, and his son and grandchildren who are American citizens.

Rather than answer your questions specifically, we will provide our general comments.

Our comments

The taxation of an individual is based on residency in the year or part thereof rather than citizenship. For example, an American citizen who is resident of Canada in a year would be required to file a Canadian Income Tax Return reporting his/her world income for that year. A Canadian citizen who is resident in the United States would only be required to file a Canadian Income Tax Return under certain circumstances, including a year when there is a disposition of taxable Canadian property. Farmland situated in Canada would be a taxable Canadian property.

The WGTPP Act defines farmland as follows:

"farmland" means land on which an annual crop of grain was cultivated during 1994 and land that was in summer-fallow during that year and on which an annual crop of grain was cultivated during 1993;"

The WGTPP Act also provides that "a person who owned farmland in the eligible area at the beginning of the day on February 28, 1995 may apply to the Minister for transition payments." It should be noted that the ownership in this particular scenario is unclear. Whether the farmland is held in a trust for the wife, son and grandchildren or whether each of the above individuals directly owns their proportionate share of the farmland needs to be resolved.

In a normal situation, landowners who farm their own farmland will make application for the payment on the appropriate application forms, following the instructions provided by Agriculture and Agri-Food Canada. The adjusted cost base (the "ACB") of the farmland will be required to be reduced by the amount of the payment received.

In a subsequent year when the sale of the farmland takes place, the reduction in the ACB of the farmland resulting from the receipt of the payment in 1996 could give rise to increased capital gains in the year of sale. The actual receipt of the payment in 1996 would not, in and by itself, give rise to income.

The reduction in the ACB of the farmland would apply to all owners, resident and non-resident, and the increased capital gains would be reported in the year of disposition. Regular tax rates would apply. An American resident who directly owned farmland in Canada would be required to file a Canadian Income Tax Return in any year that a disposition of the farmland takes place.

In a situation where the farmland is farmed by a lessee, the applicant landowner must reach an equitable agreement with the lessee with respect to sharing the payment or some other mutual arrangement as a condition of payment. If it is agreed or decided that a portion of the payment is to be given to the lessee by the landowner upon receipt of the payment, that portion will be income to the lessee and will not be considered to have been a transition payment to the landowner. The actual receipt of that portion of the payment passed on to the lessee and the payment, itself, to the lessee will not affect the landowner's income. However, the payment would constitute business income to the lessee.

We trust our comments will be of assistance to you. However, should you require further clarification, you can contact your Taxation Services Office.

Yours truly,

R. Albert
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

c.c. Debbie Miuer, Winnipeg Taxation Centre