16 October 1998 External T.I. 9824765 - RESTRICTED FARM LOSSES AGAINST CAPITAL GAINS.

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 restricted farm losses can be applied against taxable capital gains from the disposition of farm property other than land.

Position: No.

Reasons: Paragraph 111(1)(c) restricts the application of restricted farm losses to "income from all farming businesses." Paragraph 53(1)(i) does allow property taxes and interest, which were included in the restricted farm losses, to be added to the ACB of farmland. However, this provision does not apply to other farm property.

XXXXXXXXXX 	J. Gibbons
		5-982476
Attention:  XXXXXXXXXX 

October 16, 1998

Dear XXXXXXXXXX:

We are replying to your letter of September 18, 1998, in which you inquire whether restricted farm losses may be used to reduce taxable capital gains from the disposition of farm property, other than land.

As indicated in paragraph 22 of Information Circular 70-6R3 dated December 30, 1996, a request for a written opinion on a completed transaction is generally considered by the taxpayer’s local tax services office. Therefore, while we are unable to provide an opinion in respect of the situation outlined in your letter, we are prepared to offer the following general comments.

The deductibility of restricted farm losses in computing taxable income is provided by paragraph 111(1)(c) of the Income Tax Act. This provision specifically provides that restricted farm losses may only be deducted to the extent of a taxpayer’s income from all farming businesses carried on by the taxpayer. Since, in our view, taxable capital gains cannot be considered part of a taxpayer’s “income from all farming businesses,” a taxable capital gain from the disposition of farm assets cannot be offset by restricted farm losses under this provision. In this regard, please refer to Interpretation Bulletin IT-232R3, for more information.

As regards comments in the Departmental guide, “Capital Gains 97,” which you refer to in your letter, you are presumably referring to the comments on pages 30 and 31 of that guide under the heading, “Restricted farm losses.” The rule discussed therein is based on paragraph 53(1)(i) of the Act which generally requires property taxes and interest on farmland, but not other farm property, to be added to the adjusted cost base of farmland. An amount added under paragraph 53(1)(i) is then excluded from a taxpayer’s farm losses.

We trust that these comments will be of assistance.

Yours truly,

J.F. Oulton, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate