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 more than 50% of the fair market value of the assets (or property) of a corporation is attributable to a particular type of asset (or property) used by that corporation principally in an active business (or in the course of carrying on the business of farming). The assets of the corporation are used by a partnership, of which the corporation is a partner, to carry on a farming business.
Position: The question is one of fact that can only be determined following an actual review. However, insofar as it concerns those assets of the corporation that are used by the partnership, of which the corporation is a partner, the corporation will be considered to have used these assets principally in the course of carrying on the business of farming in Canada if the partnership uses these assets principally in the course of carrying on the business of farming in Canada.
Reasons: It is our general view that assets or property used by a partnership, of which a corporation is a partner, in the course of carrying on a business will be considered to be used by the corporation in the course of carrying on that business.
XXXXXXXXXX 2000-000643
J. Gibbons
Attention: XXXXXXXXXX
May 25, 2000
Dear Sir or Madam:
We are replying to your letter of January 20, 2000, in which you requested an interpretation of the application of the definitions of "qualified small business corporation share" and "share of the capital stock of a family farm corporation" in subsection 110.6(1) of the Income Tax Act (the "Act"). In your letter, you described the following situation:
Facts
1. Mr. A and Mrs. A own all of the shares of Corporation A, which is a Canadian-controlled private corporation, and have held the shares for more than 24 months.
2. Corporation A holds land, farming assets and an interest in a partnership (the "Partnership").
3. The Partnership performs all of the farming operations.
4. The partners own all of the capital assets used by the Partnership in the farming operation.
5. Corporation A provides the land and other farming assets to the Partnership, which are more than 50% of the assets used in the Partnership.
6. Mrs. A provides management services to the Partnership. These management services include business decisions with respect to the everyday operations, the types and the amounts of particular crops to produce each year and accounting services.
7. The other partner of the Partnership, Corporation B, is an arm's length party.
8. Corporation B provides operating assets and labor to the operations of the Partnership.
Specifically, you wish us to confirm:
i. whether more than 50% of the fair market value of the assets of Corporation A is attributable to assets used principally an active business carried on primarily in Canada by the Corporation [subparagraph (c)(i) of the definition of "qualified small business corporation share" in subsection 110.6(1)]; and
ii. whether more than 50% of the fair market value of the property owned by Corporation A is attributable to property that was used by the Corporation or the individual principally in the course of carrying on the business of farming in Canada in which the individual was actively engaged on a regular and continuous basis [subparagraph (a)(i) of the definition of "share of the capital stock of a family farm corporation" in subsection 110.6(1)].
Our views
As requested, we have considered your questions and have provided some comments below. However, we cannot confirm the tax implications of particular transactions unless 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. Thus, our comments are of a general nature only.
Whether more than 50% of the fair market value of the assets (or property) of a corporation is attributable to a particular type of asset (or property) used by that corporation principally in an active business (or in the course of carrying on the business of farming) is a question of fact that can only be determined following an actual review. However, it is our general view that assets or property used by a partnership, of which a corporation is a partner, in the course of carrying on a business will be considered to be used by the corporation in the course of carrying on that business. Accordingly, insofar as it concerns those assets of Corporation A that are used by the Partnership, Corporation A will be considered to have used these assets principally in the course of carrying on the business of farming in Canada if the Partnership, of which Corporation A is a partner, uses these assets principally in the course of carrying on the business of farming in Canada.
In regard to whether an individual, i.e., Mrs. A in your fact situation, is actively engaged on a regular and continuous basis in the farming business is a question of fact. However, as indicated in paragraph 27 of IT-268R4, "Inter Vivos Transfer of Farm Property to Child," the requirement is considered to have been met when the person is "actively engaged" in the management and/or day to day activities of the farming business.
Ordinarily, the person would be expected to contribute time, labour and attention to the business to a sufficient extent that such contributions would be determinant in the successful operation of the business. Whether an activity is engaged in on a "regular and continuous basis" is also a question of fact, but generally an activity that is infrequent, or activities that are frequent but undertaken at irregular intervals, would not meet the requirement. If farming is not the chief source of income, that is, subsection 31(1) applies, it may be more difficult to demonstrate that the taxpayer, the taxpayer's spouse or the taxpayer's child was actively engaged on a regular and continuous basis in the business of farming.
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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