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 land may qualify as qualified farm property if it is gifted by a parent to his adult child in January or February, 2000, and the child only begins to work the land in April or May, 2000, after there is no more frost in the ground.
Position: Yes, it may qualify depending on the facts.
Reasons: In our view, subparagraph (vii)(A) of the definition of qualified farm property does not require use of the farm property by specified individuals before it is disposed of, but rather it requires only that the property be used by the specified individuals in the year the property is disposed of.
XXXXXXXXXX J. Gibbons
1999-001507
Attention: XXXXXXXXXX
March 8, 2000
Dear XXXXXXXXXX:
We are replying to your letter of December 14, 1999, in which you requested an advance ruling in respect of a gift of farmland by an individual (the "individual") and a sibling to the individual's adult child. In particular, you requested confirmation concerning (i) the calculation of the individual's capital gain, (ii) whether the property will qualify as "qualified farm property" for the individual, and (iii) whether the individual's son is deemed to have acquired the property at fair market value at the time of the gift. You also ask whether the property will qualify as qualified farm property if the property is gifted in January or February of 2000 and the individual's child only begins to work the land in April or May of 2000, after the frost.
A request for an advance ruling must be submitted in the manner set out in Information Circular 70-6R3. Further, although we may issue an advance income tax ruling on a question of fact, such as whether or not a property qualifies as a qualified farm property, we will only do so if it is possible to determine all the material facts and those facts that can reasonably be expected to prevail. We will not, however, issue an advance ruling when the issue concerns tax-related calculations. Thus, for example, we will not confirm an individual's capital gain calculation. While we were unable to issue an advance ruling, we have provided some general comments below.
In the situation you described, the individual and his sibling inherited the farmland from their father on his death in 1956. They have rented the land to a neighbor since that time. However, they will gift the property to the individual's adult child (early in 2000) and have informed the neighbor that they will no longer rent the land to him. The child will begin farming as soon as the frost is gone in 2000.
Item (i) - Capital gains calculation
The question on the correct calculation of the individual's capital gain should be addressed to your local tax services office. In any case, you should note that, except as expressly provided by the Income Tax Act, where anything is disposed of by a taxpayer to a person with whom he or she does not deal at arm's length for no proceeds or for proceeds less than its fair market value, the taxpayer is deemed to have received proceeds equal to its fair market value by virtue of paragraph 69(1)(b) of the Act.
Item (ii) - Qualified farm property
Pursuant to subparagraph (vii)(A) of the definition of "qualified farm property," property last acquired by an individual before June 18, 1987, will qualify as qualified farm property if it was used by the individual's child principally in the course of carrying on the business of farming in Canada in the year the property was disposed of by the individual. It is always a question of fact, which can only be determined following an actual review, whether a property was used principally in the course of carrying on the business of farming in Canada, whether the business is considered a farming business, and whether a particular individual is carrying on a specific farming business. 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 business of farming.
Item (iii)- Cost of property
Paragraph 69(1)(c) of the Act provides that, subject to specific rules elsewhere in the Act, where a taxpayer has acquired property by way of gift, bequest or inheritance, the taxpayer shall be deemed to have acquired the property at its fair market value at the time the taxpayer so acquired it. The question of the fair market value of property is a question of fact.
Lastly, you inquire whether the individual's land may qualify as qualified farm property if it is gifted to the individual's child in January or February, 2000, and the child only begins to work the land in April or May, 2000, after there is no more frost in the ground. In our view, subparagraph (vii)(A) of the definition of qualified farm property does not require use of the farm property by specified individuals before it is disposed of, but rather it requires only that the property be used by the specified individuals in the year the property is disposed of.
As discussed above, subsection 69(1)(b) is the general rule for determining the proceeds of disposition of property in a non-arm's length transaction. However, subsection 73(3) is a specific rule which will apply where a parent, while living, transfers to his or her child property used principally in the business of farming in Canada in which the parent, the parent's spouse or any of the parent's children was actively engaged on a regular or continuous basis. The transfer may be by way of sale or a gift. As noted above, it is always a question of fact whether a property was used principally in the course of carrying on the business of farming in Canada, whether a particular business is considered a farming business, and whether a particular individual is carrying on a specific farming business. Accordingly, such a determination requires a review of all of the facts surrounding a situation. In this regard, we also note that a lessor of farm property is not considered to be using the property in the business of farming. (See paragraph 25 of IT-268R4, "Inter Vivos Transfer of Farm Property to Child.")
We trust that these comments will be of assistance.
Yours truly,
John Oulton
for Director
Business and Publications Division
Income Tax Rulings Directorate
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