14 November 2000 External T.I. 2000-0051095 - DISPOSITION OF FARMLAND BY CORP.

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:

Is there any capital gains relief for a corporation disposing of farmland to either a third party or its shareholder?

Position TAKEN:

No.

Reasons FOR POSITION TAKEN:

Subsection 110.6(2) of the Act and subsection 73(3) of the Act do not apply to dispositions by corporations.

XXXXXXXXXX 2000-005109
J. Wilson
November 14, 2000

Dear XXXXXXXXXX:

Re: Disposition of Property by Corporation

This is in reply to your letter of October 12, 2000 wherein you requested our views on two scenarios. First, a Canadian-controlled private corporation holds several investment properties (e.g. stocks, bonds, etc.) as well as 80 acres of farmland. The farmland has been held as rental property for several years and has not been actively farmed. You wish to know that if the farmland is sold to a third party, is there any capital gain protection available under the Income Tax Act ("Act"). Second, if the corporation does not sell the farmland to a third party but instead transfers it to its sole shareholder, an individual, you again wish to know if there is any capital gain protection or special rollover treatment.

Our Comments

Please note that your request is more in the nature of tax consultation, and the Canada Customs and Revenue Agency (CCRA) does not provide tax planning advice. Accordingly, in light of the tax issues involved, you may wish to consider consulting with a tax advisor. We have, however, provided some general comments.

There are no special rules in the Act providing capital gains protection to a corporation that is disposing of farmland to an arm's length purchaser, regardless of whether the farmland was actively farmed or held as a rental property. The Act does have special rules that may provide an exemption for all or a portion of a capital gain realised on the disposition of "qualified farm property", however, this exemption generally only applies to dispositions made, and capital gains realised by, individuals.

With respect to a transfer of the farmland by the corporation to its shareholder, there are no special rules or rollover provisions in the Act that would provide relief on this transaction. Again, there are special rules in the Act that provide for a deferral of the capital gain where certain farm property is transferred from a taxpayer to his child, however these rules do not extend to farm property being disposed of by a corporation to its shareholder. For purposes of computing taxable income, the corporation would have to recognise proceeds of disposition equal to the fair market value of the farmland at the date it was transferred to its shareholder, assuming the transfer resulted in a change in legal and beneficial ownership.

Since we have not been provided with sufficient details, our comments above should not be construed to suggest that the CCRA has reviewed or accepted that the farmland was held by the corporation on account of capital. We trust that these comments will be of assistance.

Yours truly,

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

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