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: Where a farmer with respect to the development of farmland that he or she intends to sell, subdivides and then proceeds to develop the land, will the land be considered to have been converted to inventory when (i) application was made to the relevant authority for approval of a plan to subdivide the land or (ii) the owner commences or causes the commencement of improvements to the land?
Position: When application was made to the relevant authority for approval of a plan to subdivide the land.
Reasons: The intention to convert the land to inventory at that time is consistent with comments in 930206 and 942718
XXXXXXXXXX 2000-000491
M. Eisner
Attention: XXXXXXXXXX
February 21, 2000
Dear Sir:
Re: Farmland - Conversion to Inventory
This is in reply to your letter of January 24, 2000, concerning the tax treatment for a farmer owning farmland who makes application for subdivision, then further develops and sells the lots.
In your letter, you referred to Interpretation Bulletin IT-218R which discusses profits, capital gains and losses from the sale of real estate, including farmland and inherited land, and the conversion of real estate from capital property to inventory and vice versa. Paragraph 12 of IT-218R states that "vacant land that is a capital property used to produce income will be considered to have been converted to inventory at the earlier of (a) the time when the owner commences or causes the commencement of improvements thereto with a view to selling it, and (b) the time of making application to the relevant authority for approval of a plan to subdivide the land into lots for sale, provided that the taxpayer proceeds with the development of the subdivision."
Paragraph 12 of IT-218R also refers to the paragraph 24 for comments on farmland. Paragraph 24 of IT-218R states that "the filing of a subdivision plan and selling lots thereunder does not in itself affect the status of the gain notwithstanding that such subdivision may enhance the value of such land." That paragraph goes on to state that "where the taxpayer goes beyond mere subdivision of the land into lots and installs improvements such as watermains, sewers or roads, or carries on an extensive advertising campaign to sell the lots, the taxpayer will be considered to have converted the land from capital property into a trading property."
In relation to the above comments, your concern is whether a farmer, with respect to farmland, is considered to have converted capital property to inventory at the time of making an application for subdivision or at the time the farmer goes beyond the subdivision of the land into lots and installs improvements.
Whether a property is a capital property at a particular time is a question of fact which can only be determined on the basis of all the relevant facts and information at that time. However, where a farmer, makes application for subdivision, then subdivides the farmland and proceeds to develop it and sell lots, it is our general view that the farmland would be considered to have been converted into inventory at the time of making application to the relevant authority for approval of a plan to subdivide the land into lots for sale.
We trust that our comments are of assistance to you.
Yours truly,
John Oulton
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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