28 April 2000 GST/HST Interpretation 8149/HQR0001755 - Transfer of Farmland

Dear XXXXX

Thank you for your facsimile transmission of March 30, 1999 concerning the application of the Goods and Services Tax (GST) to your clients. Please accept our apology for the delay in this response.

Please note that as of November 1, 1999, Revenue Canada became the Canada Customs and Revenue Agency (CCRA).

Interpretation Requested

A father has legal title to farmland and wishes to transfer legal title to him and his son, as joint tenants. The father and son are the sole partners in a partnership that is engaged in a farming business. The partnership is registered for GST purposes. As per our conversation of March 14, 2000 and April 11, 2000:

•   the father has owned legal title to the farmland since at least XXXXX

•   the partnership was formed at least XXXXX years ago

•   there is no written partnership agreement

•   the partnership operates under one name

•   the farmland has been used by the partnership at least XXXXX years and is currently being used by the partnership in its farming operation

•   the farmland will continue to be used by the partnership in its farming operation

•   the income of the partnership is calculated as if the partnership were a distinct entity for Income Tax purposes

•   the income derived and the expenses incurred with respect to the farmland are accounted for as partnership income and expenses

•   there is no monetary sum involved in the transfer of the title of the farmland from the father to the father and son as joint tenants

You have asked:

1. Will it be necessary for the son to register for the Goods & Services Tax on an individual basis?

2. Since the interest in the land will be rolled from father to son at the adjusted cost base, should that amount, fair market value or some other value be used in reporting the acquisition of an interest in the land on the Goods & Services Tax return.

Interpretation Given

In questions relating to farm partnerships and the transfer of title of farm property from father to father and son as joint tenants, it is important to determine, (1) before title is transferred, who is the beneficial owner of the property (i.e. a partner or the partnership) and (2) if the farmland is being used by a partnership at law. For property to be considered partnership property, while title to that property is registered in the name of the individual, there must be evidence indicating that the property is partnership property. That evidence could be a caveat of some sort to the title registration, the partnership agreement itself or the method by which revenue and expenses are accounted for with respect to the property. Based on the facts submitted, we are of the view that a partnership existed, that the father holds title to the farmland on behalf of the partnership, that the farmland became partnership property prior to the implementation of the GST, and that at the time of the transfer of legal title to which the inquiry relates, the farmland remains partnership property.

If the father, as a partner of the partnership, wishes to change legal title to the property into him and his son's name, the property would still remain partnership property for GST purposes. The provisions of subsection 272.1(1) of the Excise Tax Act (ETA) would apply so as to deem that anything done by a person as a member of a partnership to have been done by the partnership in the course of the partnership's activities and not to have been done by the person. Given subsection 272.1(1), the father holding and transferring the title in the farmland is deemed to be an activity of the partnership and the son receiving and holding title to the farmland is also deemed to be an activity of the partnership. So long as the partnership remains the beneficial owner of the property, and the property is used in partnership activities, the effect of the application of subsection 272.1(1) is that there would be no GST consequences on the transfer of legal title from the father to the father and son's name. The son would not have to register on an individual basis.

It is, important to note, however, that any subsequent supply or change of use of the farmland may have GST implications.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Department with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at 613-954-7945 or Philippe Nault at 613-952-3413.

Yours truly,

Susan Mills
Corporate Reorganizations Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate