10 April 2000 External T.I. 1999-0008385 - QFP-UNDIVIDED INTEREST IN LAND

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

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.

Principal Issues:

Whether a particular property meets the "principally" used test for purposes of subsection 70(9) and the definition of qualified farm property ("QFP") in subsection 110.6(1).

Position TAKEN:

No, based on the limited information provided.

Reasons FOR POSITION TAKEN:

The taxpayer (the "Individual") and his brother each acquired a 50% undivided interest in the property and each farmed 50% of the property in each of their separate businesses (these are given as facts). Under this type of ownership, each party owns an undivided interest in the entire property, such that each co-tenant's part cannot clearly be identified, each has a right to occupy the property in respect of all its areas and neither party can point to a particular part as being his share of all areas. Accordingly, in our view, in this situation it would appear that the Individual could, at most, be considered to use 50% of the property. As a result, based on the limited information provided, it would appear that the "principally" used test (i.e. more than 50%) would not be met.

This position agrees with the position taken in file 933027 with respect to the principal use of an asset, in which a 50% undivided interest is owned, for purposes of the QSBCS definition.

XXXXXXXXXX 		1999-000838
M. Azzi
Attention:  XXXXXXXXXX  

April 10, 2000

Dear Sirs:

Re: Use of Farm Property

This is in reply to your letter of November 12, 1999, wherein you requested our views on the principal use of a property for purposes of the capital gains deduction for qualified farm property ("QFP") in section 110.6 of the Income Tax Act (the "Act"), and the transfer to a child under subsection 70(9) of the Act.

You indicate that a taxpayer (the "Individual") and his brother each acquired a 50% undivided interest in farmland and that they each farmed 50% of the property, with each taking 50% of the crop. You indicate that no partnership existed, such that each individual is carrying on a separate business.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R3, dated December 30, 1996. Where the particular transactions are completed, the enquiry should be addressed to the relevant tax services office. However, we are prepared to offer the following general comments.

The determination of whether a particular property falls within the ambit of subsection 70(9) of the Act or of the definition of QFP in subsection 110.6(1) of the Act is question of fact which requires a review of all the relevant facts of each particular case. Similarly, the existence of a partnership is also a question of fact; however, as requested, for purposes of this reply we have assumed that no partnership exists in the above situation.

Subsection 70(9) of the Act and the definition of QFP in subsection 110.6(1) of the Act both require that, inter alia, the relevant property be "principally" used in the business of farming. It is always a question of fact whether a particular asset is used principally in a farming business, whether a particular operation constitutes a farming business, and whether an individual is carrying on that particular farming business. However, where reference is made to an asset being used principally in the business of farming, the asset will meet this requirement if more than 50% of the asset's use is in the particular business of farming.

In the situation you have described, each party owns a 50% undivided interest in the land. Under this type of ownership, each party owns an undivided interest in the entire property, such that each co-tenant's part cannot clearly be identified, each has a right to occupy the property in respect of all its areas and neither party can point to a particular part as being his share of all areas. Accordingly, in our view, in the above situation it would appear that the Individual could, at most, be considered to use 50% of the property. As a result, based on the limited information provided, it would appear that the "principally" used test noted above would not be met, such that that the property would not fall within the ambit of subsection 70(9) of the Act or of the definition of QFP in subsection 110.6(1) of the Act. This result would not be affected by the fact that an undivided interest is held in a tenancy in common situation or in joint tenancy situation.

We trust that these comments will be of assistance.

Yours truly,

Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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