6 November 2000 External T.I. 2000-0018095 - AGRIC. INCOME DISASTER ASSIST.

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:

1 ) Are payments received out of AIDA taxable, and if so, under which section of the Income Tax Act (the "Act");
2 ) for the purposes of the small business deduction, what type of income is AIDA, active or inactive;
3 ) would the determination of whether AIDA was taxable or the type of income depend on the type of farmer receiving the payment (active farmer or farmer on crop share basis, etc.); and,

4 ) any provision to allow payments from AIDA as a deduction from ACB of farmland, similar to the CROW pay out a few years ago.

Position:

1 ) Yes; 2 ) active (generally); 3 ) depends; 4 ) no

Reasons:

1 ) By virtue of 12(1)(x); 2 ) AIDA generally related to active farming income; 3 ) share cropping is considered rental income but qualifies for AIDA if individual incurs risk in production; 4 ) no provision

XXXXXXXXXX 	2000-001809
		Cornelis Rystenbil, CGA
Attention:  XXXXXXXXXX 

November 6, 2000

Dear Sir:

Re: Agricultural Income Disaster Assistance Program (AIDA)

This is in your reply to your request of March 31, 2000 in which you ask the following questions:

1) Are payments received out of AIDA taxable, and if so, under which section of the Income Tax Act (the "Act");

2) for the purposes of the small business deduction, what type of income is AIDA, active or inactive;

3) would the determination of whether AIDA was taxable or the type of income depend on the type of farmer receiving the payment (active farmer or farmer on crop share basis, etc.); and,

4) is there any provision to allow payments from AIDA as a deduction from the adjusted cost base (the "ACB") of farmland, similar to the CROW pay out a few years ago.

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 income tax ruling request, submitted in the manner set out in Information Circular 70-6R3. The following comments are therefore, of a general nature only, and are not binding on the Canada Customs and Revenue Agency. In addition, where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office.

Our comments:

It is our understanding that AIDA is a two-year program for the 1998 and 1999 taxation years. It provides support to producers who are actively farming in Canada when, for reasons beyond their control, there is an extreme reduction in their farm income.

According to AIDA officials, sharecropping is eligible for AIDA if the individual takes a risk in the production of the crop. The 1999 AIDA Program Handbook (the "Handbook") under section 4.4 specifically states: "landlord crop share rental income is only eligible to the extent that the income received by the landlord results from sharing both price and yield risks with the tenant." We note that section 8.9 of the Handbook states that "AIDA payments are considered farming income for income tax purposes." However, paragraph 9 of IT-433R "Farming or Fishing - Use of Cash Method" indicates that the crop share received by a landlord in a sharecropping arrangement is considered to be rental income and not income from farming. "Sharecropping arrangement" means an arrangement where a taxpayer or landlord receives from a tenant a share of a crop in lieu of rent.

With regard to question 1, in our view, payments received from the AIDA program are taxable by virtue of paragraph 12(1)(x) of the Act to the extent that the payment is not otherwise included in income by virtue of sections 9 or 28 of the Act.

With regard to question 2, Income of the corporation for the year from an active business is defined in subsection 125(7) to be "the corporation's income for the year from an active business carried on by it including any income for the year pertaining to or incidental to that business, other than income for the year from a source in Canada that is a property (within the meaning assigned by subsection 129(4)), ..." Since the AIDA funds received are pertaining to, or incidental to, a farming business, in our view, generally, AIDA payments would be active income for purposes of the small business deduction. However, see the comments below regarding sharecroppers.

With regard to question 3, as per paragraph 9 of IT-433R, sharecropping income is considered rental income not farming income. As a result, the income reporting of AIDA will depend on whether the recipient is an active farmer or a sharecropper. In our view, AIDA income is farm income if the payment was received to supplement farm income. Alternatively, AIDA income would be considered rental income if the assistance was received to supplement income from sharecropping. In summary, the AIDA income maintains the characteristics of the income on which the payment is based. AIDA income received by a sharecropper would not be active income for purposes of the small business deduction.

With regard to question 4, there is no provision that we are aware of that would allow payments from AIDA to be recorded as a deduction from the ACB of farmland.

We trust that these comments will be of assistance.

Yours truly,

Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings Directorate

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