7 October 2016 APFF Roundtable Q. 9, 2016-0652921C6 F - Résidence - actif utilisé / Residence - asset used -- translation

Translation disclaimer

This translation was prepared by Tax Interpretations Inc. The CRA did not issue this document in the language in which it now appears, and is not responsible for any errors in its translation that might impact a reader’s understanding of it or the position(s) taken therein. See also the general Disclaimer below.

Principal Issues: Does the CRA position in paragraph 22 of Interpretation Bulletin IT-268R4 apply to a person who is a shareholder but not an employee?

Position: No

Reasons: The CRA is not ready to expand the position taken in this interpretation bulletin to other situations. Where the shareholder is not an employee of the corporation, the CRA is of the view that the residence is used by the shareholder and not for the business operation.

7 October 2016 APFF Roundtable Questions

9) Share of the capital stock of a family farm corporation / Qualified small business corporation share and principal residence

For the purposes of the definition of "share of the capital stock of a family farm corporation" in subsection 110.6(1), paragraph 22 of Interpretation Bulletin IT-268R4 provides that a residence held by a corporation will be considered to be used principally in the course of carrying on the business of farming "if more than 50% of its use is as accommodation for persons who are actively employed in the farming business", but is provided to the persons in their capacity as employees rather than as shareholders and whose services may be required at virtually any time by virtue of the nature of the farming operations.

In addition, the CRA confirmed in CRA Views October 1991-242 that, for the purposes of the definition of "qualified small business corporation share" in subsection 110.6(1), “used principally in an active business” is to be interpreted in the same way as the expression "used principally in the course of carrying on the business of farming" in the case of a residence and, therefore, paragraph 22 of the Interpretation Bulletin IT-268R4 would apply in that case as well.

Consider the following case:

  • Corporation A carries on a farming business;
  • All the shares in Corporation A are held by Mr. A;
  • Corporation A owns the residence occupied by Mr. A, his spouse and their children (the "Residence"), which is located on farming land that is cultivated;
  • Mr. A is an active participant in the carrying on of the farm business of Corporation A as the principal operator of this business;
  • Mr. A is not an "employee" of Corporation A.

Questions to the CRA

(a) In the above situation, would the residence constitute property used principally in the course of carrying on the business of farming for the purposes of the definition of "share of the capital stock of a family farm corporation" in subsection 110.6(1)?

(b) In the above situation, would the Residence constitute property used principally in the course of an active business for the purposes of the definition of "qualified small business corporation share" in subsection 110.6(1)?

CRA response

In paragraph 22 of Interpretation Bulletin IT-268R4 (footnote 1), a residence owned by a corporation will be regarded as used principally in the course of carrying on the business of farming if more than 50% of its use is as accommodation for persons who are actively employed in the farming business or their dependants. According to this paragraph, this position applies for the purposes of subsection 73(3) and the definitions of "share of the capital stock of a family farm corporation" and "interest in a family farm partnership" in subsection 70(10). Furthermore, the residence must be provided to the persons in their capacity as employees rather than as shareholders and the residence must be part of the business operation in that it provides accommodation for employees whose services may be required at virtually any time by virtue of the nature of the farming operations. The CRA is not prepared to extend this position to other situations.

This position also applies for purposes of the definition of "qualified small business corporation share" and "share of the capital stock of a family farm corporation" and, for the 2014 and subsequent taxation years, of the definition of a "share of the capital stock of a family farm or fishing corporation” as defined in subsection 110.6(1).

In addition, for the 2014 and subsequent taxation years, this position also applies to the terms "share of the capital stock of a family farm or fishing corporation" and "interest in a family farm or fishing partnership" as defined in subsection 70(10).

Anne Dagenais
(613) 670-9050
October 7, 2016
2016-065292

FOOTNOTES

Due to our system requirements, the footnotes contained in the original document are reproduced below:
1 CANADA REVENUE AGENCY, Interpretation Bulletin IT-268R4 ARCHIVED "Inter Vivos Transfer of Farm Property to Child", April 15, 1996.

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