Income Tax Severed Letters - 1997-04-04

Principal Issues:

The partners of a farm partnership are considering establishing a corporation and to transfer all land titles into the name of that corporation. The corporation will also manage the business of the partnership. The beneficial ownership of the land will stay with the partnership. Would the Department treat the corporation as a bare trust and therefore consider that all the income and expenditure related to the farming operation is that of the partnership itself rather than the corporation?

Position:

The Department will, generally, recognize the existence of a corporate "bare trust" where the following conditions are met:

1.A Declaration of Trust has been entered into at the time the property was acquired by the corporation; and

2.As in ATR-1 the corporation should not be empowered to perform any active duties with respect to the property other than those directly related to the business reason(s) that the "bare trust" was considered necessary in the first place.

Reasons:

Principal Issues:

Whether, payments made by FCC as an adjustment in the purchase price of land, in accordance with the purchase and sale agreement, is a farm support payment within the definition contained in section 234 of the Income Tax Regulations (the "Regulations"). Also, where FCC unilaterally decides to pass on a portion of the WGTPP payment received by them in respect of lands owned by them and leased to the tenants of the respective land, would such amounts constitute "farm support payments" within the meaning in subsection 234(2) of the Regulations?

Position:

It is questionable whether FCC, is an entity that falls within the purview of subsection 234(1) of the Regulations as it may not be an entity described therein as, "Every government, municipality or municipal or other public body (in sections 235 and 236 referred to as the "government payor") or producer organization or association...".

In any event, the purchase price adjustment as set out in the purchase and sale agreement for the land is not a farm support payment described within subsection 234(2) of the Regulations as the amount in question is paid in accordance with the purchase and sale agreement.

The payment to land tenants by FCC was made voluntarily by FCC and is not made pursuant to an equitable arrangement referred to in paragraph 6(c) of the Western Grain Transition Act. Should FCC be bound by Regulation 234, the payments in question would fall within the definition of "farm support payments" as contained in subparagraph (2)(c)(i) of Regulation 234.

Reasons:

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.

NISA Administration
P.O. Box 6100
Winnipeg, Manitoba 962107
R3C 3A4 A.M. Brake

Attention: Charlene Parks

February 27, 1997

Dear Sirs:

Re: Farming and Non-Farming Activities

Principal Issues:

Whether U.S.source income received by a Canadian trust and distributed to a Canadian beneficiary would be treated as income arising in the United States for purposes of paragraph 6 of Article XXI of the Treaty.

Position:

Subsection 104(22) of the Act is necessary for Canadian foreign tax credit reasons but does not deem such distributions from the trust to be from a foreign source for all other purposes, particularly paragraph 6 of Article XXI of the Treaty. The general rule is found in paragraph 108(5)(a) of the Act which reads as follows:

"an amount included in computing the income for a taxation year of a beneficiary of a trust under subsection 104(13) or (14) or section 105 shall be deemed to be income of the beneficiary for the year from a property that is an interest in the trust and not from any other source".

Reasons:

Principal Issues:

Whether or not land in excess of 1/2 hectare is part of a principal residence.

Position:

Not able to determine since it is a question of fact.

Reasons:

Principal Issues:

The source of a capital gain arising from a distribution of U.S. securities from a Canadian trust to a U.S. beneficiary for purposes of Article XXII of the Canada-U.S. Treaty.

Position:

Canadian source.

Reasons:

Principal Issues:

The status of payments to be made by the taxpayer's current spouse to his former spouse upon the taxpayer's death.

Position:

Payments are neither income to recipient nor deductible by the payer.

Reasons:

Principal Issues:

Whether a gift where donation made as a pre-condition of subdivision approval?

Position:

Does not qualify as a gift.

Reasons: