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: For the purposes of the MIA rules which apply to a farming business (Cash basis), is the personal farming operation of an individual and a business farming operation carried on by a partnership (the individual is one of the two partners) comprise "one" business?
Position: No
Reasons: By virtue of the structure of subsections 96(1) 28(1) and 28(2), the MIA rules apply to each business operation.
XXXXXXXXXX 2000-001243
M. Eisner
September 13, 2000
Dear XXXXXXXXXX:
Re: Mandatory Inventory Adjustment
This is in reply to your letter of March 7, 2000 concerning the above-noted subject.
You have asked us to consider a situation where two individuals ("Individual A" and one other individual) are equal partners in a general partnership carrying on a farming operation. Individual A, who accounts for his farming operation on a cash basis, purchases cattle during a taxation year. Prior to the mandatory inventory adjustment ("MIA") pursuant to paragraph 28(1)(c) of the Income Tax Act (the Act"), Individual A has a loss of $100,000 from his or her farming business. Without taking Individual A's share of farming income from the partnership into account, Individual A is required to add an MIA so that his loss would be reduced to nil. Individual A's share of the income from the partnership is $200,000.
You have asked if Individual A is permitted to take his or her share of the partnership income into account for the purposes of the MIA (i.e., there would be no MIA) on the basis that the farming operation of the partnership and the farming operation that Individual A personally carries on can be considered as one business.
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request. The procedures for requesting an advance income tax ruling are outlined 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 provide the following comments which are of a general nature and are not binding on the Agency.
If a taxpayer so elects under subsection 28(1) of the Act, a taxpayer may compute his or her income from a farming operation in accordance with the cash basis although such a taxpayer then becomes subject to the MIA rules. In the case of a partnership, subsection 28(2) of the Act provides that the election to compute income in accordance with the cash method does not apply for the purposes of computing the income of a taxpayer for a taxation year from a farming or fishing business carried on jointly with one or more other persons, unless each of the other persons has elected to have the income from the business computed in accordance with the cash method.
In general terms, it is our view that Individual A's share of the partnership income is income from a separate business that is not to be taken into account by him or her in applying the MIA rules in respect of his or her personal farming business operation. Subsection 96(1) of the Act provides that a partnership computes its income as if it were a separate person. Since paragraph 28(1)(c) of the Act is relevant in the computation of income, it is applied at the partnership level. This was the position taken in our letter of July 21, 1994 (5-940909) to which you referred.
We trust that our comments are of assistance to you.
Yours truly,
John Oulton
for Director
Business and Publications Division
Income Tax Rulings
Policy and Legislation Branch
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