14 November 2000 External T.I. 2000-0050455 - QUAL. FARM PROPERTY

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.

PRICNCIPAL ISSUES

Can farm property previously owned by the taxpayer's brother-in-law and uncle-in-law (ineligible owners for purposes of subsection 110.6(1) of the Act), even thought the property was owned before them by the grandfather-in-law (an eligible owner for purposes of 110.6(1) of the Act), qualify as "qualified farm property"?

Position TAKEN
No

Reasons FOR POSITION TAKEN

The period of continuous ownership of the property by the grandfather-in-law and the taxpayer was interrupted by the acquisition of the property by the brother-in-law and uncle-in-law.

XXXXXXXXXX 2000-005045
J. Wilson
November 14, 2000

Dear XXXXXXXXXX:

Re: Qualified Farm Property

This is in reply to your facsimile of October 5, 2000, wherein you ask us for our opinion on whether certain land is qualified farm property. An individual bought land from his wife's brother who had actively farmed the land. Before that, the land belonged to his wife's uncle and before that to his wife's grandfather. The land has been in his wife's family for over 70 years and had always been actively farmed. In the years the land was owned and farmed by the brother-in-law, uncle-in-law and grandfather-in-law, their income from farming exceeded all their income from other sources. However, while the land was owned by the individual, it has been rented out for cash to another farmer.

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 generally 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. (underlining for emphasis)

In the situation you describe, the grandfather-in-law would be considered a "parent" for purposes of section 110.6 of the Act due to the interaction of the definition of "child" in subsection 70(10) (which applies for the purposes of section 110.6), paragraph 252(1)(e) and subparagraph 252(2)(a)(i) of the Act. However, the period of continuous ownership of the property by the grandfather-in-law and the individual was interrupted by the acquisition of the property by the brother-in-law and the uncle-in-law. 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 brother-in-law and the uncle-in-law are not persons described in that subparagraph, the period of time in which the individual meets this condition, assuming he has owned the property himself for at least 24 months, is from the date he acquired the property from his brother-in-law to the date he disposes of the property ("continuous ownership period"). Under clause (a)(vi)(A) of the definition, in at least 2 years during the continuous ownership period the individual 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 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. However, based on the little information available, the individual does not appear to meet these requirements at this particular time.

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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