13 September 2000 External T.I. 2000-0030055 - CONTINUOUS OWNERSHIP - QFP

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
Can farm property owned by the taxpayer's aunt previously acquired by the taxpayer's grandfather qualify as an interest in qualified farm property

Position TAKEN
No

Reasons FOR POSITION TAKEN
Aunt is not a qualified user or owner

XXXXXXXXXX 2000-003005
C. Tremblay
September 13, 2000

Attention: XXXXXXXXXX

Dear Sir:

This is in reply to your letter of June 1, 2000, wherein you ask us for our opinion on whether certain land is qualified farm property. The land is owned by an individual who acquired it from his aunt's estate in 1995. His aunt acquired it prior to June 17, 1987 from her father who is also the individual's grandfather. The grandfather farmed the land for more than five years and during those years, his income from farming exceeded all his income from other sources.

You have given us 3 different scenarios and you ask whether the property could be considered qualified farm property to the individual.

Scenario 1

During the period that the aunt owned the land, the individual farmed the land.

Scenario 2

During the period that the aunt owned the land, it was rented to an unrelated third party.

Scenario 3

During the period that the aunt owned the land, she farmed the land and during each year, her income from farming exceeded all her income from other sources combined.

Our Comments

The particular circumstances in your letter on which you have asked for our views appears to be a factual situation involving a specific taxpayer. As explained in Information Circular 70-6R3, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate taxation services office for their views. However, we offer the following general comments which may be of assistance.

The term "qualified farm property" of an individual is defined in subsection 110.6(1) of the Income Tax Act (the "Act"). Where the property in question was last acquired by the individual after June 17, 1987, subparagraph (a)(vi) of the definition requires, inter alia, that the property have been owned by one or more of the persons mentioned in that subparagraph throughout the period of at least 24 months immediately preceding the disposition of the property. In addition, clause (a)(vi)(A) of the definition requires, inter alia, that while it was so owned, the property have been principally used in the business in which a person mentioned in subparagraph (a)(vi) was actively engaged on a regular and continuous basis.

In the situation you describe, the period of continuous ownership of the property by the grandfather and the individual was interrupted by the acquisition of the property by the aunt. The definition of qualified farm property in subparagraph 110.6(1)(a)(vi) of the Act requires that the property " ....was owned by a person who was the individual, a beneficiary referred to in subparagraph (ii) or a spouse, child or parent of the individual ...throughout the period of at least 24 months immediately preceding that time". Accordingly, in your situation, since the aunt is not a person described in that subparagraph the period of time in which the individual meets this condition is from the date he acquired the property from his aunt to the date he disposes of the property ("continuous ownership period"). Under clause (a)(vi)(A) of the definition of qualified farm property in subsection 110.6(1) of the Act, in at least 2 years during the continuous ownership period he would have to meet the "gross revenue" test described therein. In other words, the individual could qualify for the capital gain deduction for qualified farm property on his own if he principally uses the property in a farming business and in at least 2 years while he owns the property (i.e. from 1995 to the date of disposition) is actively engaged on a regular and continuous basis and his gross revenue from the farming business carried on in Canada exceeds his income from all other sources in the year.

In summary, the use of the property for farming during the period owned by the aunt in your scenario 1 and 3 would not be relevant for the purposes of clause (a)(vi)(A) of the definition. In scenario 2, not only is the owner not a person mentioned in subparagraph (a)(vi), the property is not being used by a qualified user in the course of carrying on the business of farming in Canada.

The above comments are based on our understanding of the law as it applies in general and may or may not apply to the circumstances of a particular case. They do not form an advance income tax ruling and they are not binding on the Canada Customs and Revenue Agency.

We trust our comments are of assistance.

Your truly,

Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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