2 October 2015 External T.I. 2012-0463801E5 F - Déduction pour gain en capital – permis de pêche -- translation

2 October 2015 T.I. 2012-0463801E5 F - Capital gains deduction - fishing license

Principal Issues: Whether the wording of clause 110.6(1.3)(a)(ii)(B) results that a corporation, to be a corporation referred to in subparagraph (a)(iv) of the definition of qualified farm or fishing property in subsection 110.6(1) for the purposes of clause 110.6(1.3)(a)(ii)(B), has to, throughout a period of at least 24 months, respect the test of paragraph (b) of the definition of share of the capital stock of a family farm or fishing corporation in subsection 110.6(1).

Position: No.

Reasons: The Act.

XXXXXXXXXX
2012-046380
I. Landry, M. Fisc.

October 2, 2015

Dear Sir,

Subject: Capital gains deduction - fishing license

This letter is in response to your email of September 27, 2012 in which you requested clarification as to the application of subparagraph 110.6(1.2)(b)(ii) of the Income Tax Act (the "Act ") as it read on that date.

All statutory references herein are references to the provisions of the Act.

Subsection 110.6(1.2) was repealed and does not apply to provisions and transfers during the 2014 and subsequent taxation years. For 2014 and subsequent taxation years, subsection 110.6(1.3) applies. However, this provision reads similarly to paragraph 110.6(1.2) before it was repealed.

Subsection 110.6(1.3) provides the conditions for property to be considered used as part of a farming or fishing business. Clause 110.6(1.3)(a)(ii)(B) provides one of those conditions, namely that:

(B) throughout a period of at least 24 months while the property was owned by one or more persons or partnerships referred to in subparagraph (i), the property was used by a corporation referred to in subparagraph (a)(iv) of the definition of "qualified farm or fishing property" in subsection (1) or by a partnership referred to in subparagraph (a)(v) of that definition in a farming or fishing business in which an individual referred to in any of subparagraphs (a)(i) to (iii) of that definition was actively engaged on a regular and continuous basis.

You wish to know if the wording of clause 110.6(1.3)(a)(ii)(B) requires that a corporation, to be a corporation referred to in subparagraph (a)(iv) of the definition of qualified farm or fishing property under subsection 110.6(1) for the purposes of clause 110.6(1.3)(a)(ii)(B), shall throughout a period of at least 24 months, comply with the test provided by paragraph (b) of the definition "share of the capital stock of a family farm or fishing corporation" in subsection 110.6(1).

Our Comments

The test provided for in subparagraph (b) of the definition of share of the capital stock of a family farm or fishing corporation in subsection 110.6(1) requires that when the test is performed, all or substantially all of the fair market value of the property owned by the corporation was attributable to property that was used principally in in the course of carrying on a farming or fishing business in Canada by an individual or partnership referred to in subparagraph (a)(i) of the definition of share of the capital stock of a family farm or farming corporation.

On the basis of a textual, contextual and purposive interpretation of clause 110.6(1.3)(a)(ii)(B), we are of the view that the test set out in paragraph (b) of the definition of share of the capital stock of a family farm or farming corporation in subsection 110.6(1) does not have to be respected by the corporation throughout a period of at least 24 months. Indeed, we are of the view that this test only needs to be complied with by the corporation at the end of the 24 month period referred to in clause 110.6(1.3)(a)(ii)(B).

We trust that these comments will be of assistance.

Michel Lambert, CPA, CA, M. Fisc.
for the Director
Business and Employment Income Division
Income Tax Rulings Directorate
Legislative Policy
and Regulatory Affairs Branch