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 there is a requirement under the definitions of "share of the capital stock of a family farm corporation" in 70(10) and 110.6(1) that the corporation be currently using the property principally in the course of carrying on the business of farming and that the period of active farming has to coincide with the ownership of the property by the corporation. In other words, can active farming by a specified person prior to the acquisition of the land by the farm corporation will qualify for the purposes of the definition.
Position: No there is no such requirement. However, the 24 month test in paragraph (a) of the definition in 110.6(1) is based on the use of the property during a 24 month period while it is owned by the corporation.
Reasons: Based on the words of the provision.
XXXXXXXXXX J. Gibbons
2000-001159
Attention: XXXXXXXXXX
July 25, 2000
Dear XXXXXXXXXX:
Your letter of January 17, 2000, which was mailed to the Calgary Tax Services Office, was forwarded to us for reply. In your letter, you requested our views concerning the interpretation of the definitions of "share of the capital stock of a family farm corporation" (the "particular definitions") in subsections 70(10) and 110.6(1) of the Income Tax Act.
In your view, there is no requirement under the particular definitions that the corporation be currently using the property principally in the course of carrying on the business of farming and that the period of active farming does not have to coincide with the ownership of the property by the corporation. In other words, you infer that active farming by a specified party prior to the acquisition of the land by the farm corporation will qualify for the purposes of the definition.
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.
Our views
Subsection 70(10) - "Share of the Capital Stock of a Family Farm Corporation"
In order to qualify as a share of the capital stock of a family farm corporation of a person under the definition in subsection 70(10), all or substantially all of the fair market value of the property owned by the corporation must be attributable to property described in paragraph (a), (b) or (c) of the definition. Paragraph (a) describes property that has been used by the corporation or other eligible person, described in subparagraph (a)(i) to (iv) of the definition, principally in the course of carrying on the business of farming in Canada in which the person (i.e., the shareholder) or a spouse, child or parent of the person was actively engaged on a regular and continuous basis. In our view, property that is owned by the corporation and that was used one of the eligible persons principally in the course of carrying on the business of farming in Canada (in which the person or a spouse, child or parent of the person was actively engaged) will satisfy the requirements of paragraph (a), even if the corporation did not own the property while the property was so used.
Subsection 110.6(1) - "Share of the Capital Stock of a Family Farm Corporation"
In order to qualify as a "share of the capital stock of a family farm corporation" of an individual under the definition in subsection 110.6(1), the requirements of both paragraphs (a) and (b) of the definition must be met.
The requirement in paragraph (a) of the definition is met if, throughout any 24-month period ending before the determination time, more than 50% of the fair market value of the property owned by the corporation was attributable to property used by an eligible person (see subparagraph (a)(i)) principally in the business of farming in which the individual or other specified individual was actively engaged on a regular and continuous basis. In our view, while the 24-month period does not have to be immediately prior to the determination time, the relevant test is based on the use of the property during a 24 month period while it is owned by the corporation.
The requirement in paragraph (b) of the definition is met if, at the determination time, all or substantially all of the fair market value of the property owned by the corporation was attributable to property described in subparagraphs (b)(i), (ii) or (iii) of the definition. Subparagraph (b)(i) describes property owned by the corporation that was used principally in the course of carrying on the business of farming in Canada by the corporation or other eligible person referred to in subparagraph (a)(i). In our view, property that is owned by the corporation and that was used by the corporation or other eligible person principally in the course of carrying on the business of farming in Canada will satisfy the requirements of subparagraph (b)(i), even if the corporation did not own the property while the property was so used.
We trust that these comments will be of assistance.
John Oulton
for Director
Business and Publications Division
Income Tax Rulings Directorate
cc Business Window, Edmonton Tax Services Office
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