30 June 2016 External T.I. 2015-0583561E5 F - Déduction pour gain en capital - contamination -- translation

Principal Issues: Are funds accumulated in AgrInvest and Agri-Québec accounts eligible properties for the definition "share of the capital stock of a family farm or fishing corporation" for the capital gains deduction?

Position: Not applicable because their FMV is deemed to be nil by ss. 110.6(1.1).

Reasons: Application of 110.6(1.1).

XXXXXXXXXX 2015-058356

J. Lacharité, CPA, CGA

June 30, 2016

Dear Sir,

Subject: Capital gains deduction - contamination

This is in response to your email of April 22, 2015 in which you asked our views on calculations respecting the capital gains deduction for qualified farm or fishing property. Unless otherwise stated, all statutory references herein are references to the provisions of the Income Tax Act (the "Act").

You wish to know if the funds in the accounts established under the AgriInvest and Agri-Québec programs are considered as property used principally as part of a farming or fishing business in Canada under the definition of a "share of the capital stock of a family or fishing corporation." You wish to know if these funds affect the calculation of percentages for purposes of the capital gains deductions for qualified farm or fishing properties.

Our Comments

This technical interpretation provides general comments on the provisions of the Act and related legislation, where referenced. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R7, Advance Income Tax Rulings and Technical Interpretations.

A "share of the capital stock of a family or fishing corporation" is defined in subsection 110.6(1).

For the purposes of this definition, it is necessary to determine the fair market value of property owned by the corporation. For this purpose, subsection 110.6(1.1) provides that:

"For the purposes of the definitions "qualified small business corporation share" and "share of the capital of a family farm or fishing corporation" in subsection (1), the fair market value of a net income stabilization account is deemed to be nil."

The definition of "net income stabilization account" is found in subsection 248(1). It reads as follows:

"[A]n account of a taxpayer:

a) under the net income stabilization account program under the Farm Income Protection Act, or;
b) that is a prescribed account;"

Subsection 4(1) of the Farm Income Protection Act (footnote 1), reads as follows:

"The Governor in Council may, by order, authorize the Minister to enter into an agreement with one or more provinces to provide for the establishment of any of the following programs:

(a) a net income stabilization account program;
(b) a gross revenue insurance program;
(c) a revenue insurance program; and
(d) a crop insurance program."

The AgriInvest program was created by the Growing Forward 2 agreement (footnote 2) concluded between Canada and the provinces on September 14, 2012, in accordance with this section.

An account established under the AgriInvest program is a net income stabilization account referred to in subsection 110.6(1.1).

In addition, subsection 5503(2) of the Income Tax Regulations provides that:

"For the purposes of the definition "net income stabilization account” in subsection 248(1) of the Act, a prescribed account is an account created under the Agri-Québec program established by La Financière agricole du Québec."

An account established under the Agri-Québec program is therefore a net income stabilization account referred to in 110.6(1.1).

We are of the view that the fact that a taxpayer holds accumulated funds in accounts established under the AgriInvest and Agri-Québec programs does not have any effect on the calculations respecting the qualification of a share as a "share of the capital stock of a family farm or fishing corporation" for purposes of capital gains deductions for qualified farm or fishing property. Under subsection 110.6(1.1), the fair market value of these accounts is deemed to be nil.

We trust that our comments will be of assistance.

Michel Lambert, CPA, CA, M. Fisc.
Manager
Business and Employment Income Division
Income Tax Rulings Directorate

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 S.C. 1991, c. 22.

2 For details on the agreement, go to: http://www.agr.gc.ca/eng/about-us/key-departmental-initiatives/growing-forward-2/... and http://www.mapaq.gouv.qc.ca/fr/Grands-dossiers/cultivonsavenir/Pages/cultivonsavenir.aspx