17 November 2000 Internal T.I. 2000-0051577 - SHARECROPPING INCOME

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: Whether a share of the crop received by a taxpayer is rent or business income. Some of the expenses of raising the crop are also paid for by the taxpayer.

Position: Question of fact. However, it may be that the taxpayer is carrying on a farming business in partnership or as a joint venture.

Reasons: The payment of the farming expenses by a landlord is not typical of a sharecropping/rental arrangement.

						November 17, 2000

	XXXXXXXXXX 				HEADQUARTERS
	Business Window			J. Gibbons
(613) 957-2135
	Attention: XXXXXXXXXX
						2000-005157

Nature of Income - Property or Business?

We are replying to your facsimile dated October 16, 2000, in which you requested our views whether income received by a taxpayer (the "son") should be reported as rental income or business income. You described the following situation:

Facts

• The son is in the XXXXXXXXXX business.
• The son lives in a rural area, across from his father, and has XXXXXXXXXX acres (the "land") surrounding his house.
• In 1999, the father, who raises hogs and crops, used the land to grow crops.
• The father used his own equipment and paid for all of the expenses used in growing the crops in 1999, except for the fuel, which was paid for by the son.
• In 1999, the son received a portion of the cash received by the father when the father sold crops.
• In 2000, the son bought one-third of the father's hog operation and spent more time on the hog operation and less time on the XXXXXXXXXX business.

You wish to know:

(i) How the son's share of the crop income should be reported in 1999, i.e., as property or farming income?

(ii) How the son's income from the hog operation should be reported in 2000?

(iii) What the general guidelines are for determining between these types of income?

Our views

When a tenant is a farmer and gives a share of the crop to the landlord in lieu of rent, the income is normally considered rental income to the landlord. (See paragraph 9 of IT-433R, "Farming or Fishing - Use of Cash Method.") However, in the situation you described, the son not only provides the farmland to his father but also pays for the fuel used by the father in raising the crops. Accordingly, it may be that son and his father are carrying a farming business in partnership or as a joint venture. (See IT-90, ""What is a partnership?") If this is the case, the son's income should be reported as income from a farming business for both 1999 and 2000, and not rental income.

In general, when determining whether income is rental income or property income, you can refer to IT-434R, "Rental of Real Property by Individual" for general guidelines. Please note that these are general comments only. If you need further assistance, we would be pleased to review all of the facts of a particular case.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Agency's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version, or they may request a copy severed using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Jackie Page at 613 957-0682. The severed copy will then be sent to you for delivery to the client.

John Oulton
for Director
Business and Publications Division
Income Tax Rulings Directorate