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 land qualifies as qualified farm property under the definition in subsection 110.6(1) of the Act. The taxpayer received a 1/3 interest in a parcel of land prior to June 17, 1987, from her spouse's estate. The father-in-law passed away in 1990, leaving his 2/3 interest to the taxpayer. The land was farmed by the taxpayer's father-in-law for a period of more than 5 years during which he owned his interest in the land. During each of those 5 years, the father-in-law's gross income from farming exceeded all of his income from other sources.
Position: Question of fact. However, the 24-month gross revenue test in subparagraph (a)(vi) may be satisfied by the taxpayer's father-in-law, assuming the father-in-law relationship existed throughout the applicable 24-month period.
Reasons: In this regard, a parent includes a father-in-law pursuant to subparagraph 252(2)(a)(iii) and paragraph 252(1)(c) of the Act.
XXXXXXXXXX J. Gibbons, CGA
2000-005238
March 2, 2001
Dear XXXXXXXXXX:
We are replying to your letter of October 16, 2000, in which you requested our views whether certain land, as described below, would qualify as "qualified farm property" pursuant to the definition of this term in subsection 110.6(1) of the Income Tax Act (the "Act").
As requested, we have considered the situation outlined in your letter and have provided some comments below. However, we cannot confirm the tax implications of particular transactions unless the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R4. Thus, our comments are of a general nature only.
Facts
1. The taxpayer (Mrs. A) received a 1/3 interest in a parcel of land (the "land") prior to June 17, 1987, from the estate of her spouse (Mr. A). The other 2/3 interest was owned by Mrs. A's father-in-law.
2. The father-in-law passed away in 1990, leaving the remaining 2/3 interest to Mrs. A.
3. The land was farmed by Mrs. A's father-in-law for a period of more than 5 years during which he owned his interest in the land. During each of those 5 years, the father-in-law's gross income from farming exceeded all of his income from other sources.
4. The land was also farmed by Mrs. A's father-in-law for a period in which either Mrs. A or Mr. A owned their interest in the land. During each of those years, the father-in-law's gross income from farming exceeded all of his income from other sources.
Issue
The question, as we understand it, is whether the land is "qualified farm property" to Mrs. A.
Under the definition of qualified farm property in subsection 110.6(1) of the Act (hereinafter referred to simply as the "definition"), the property must have been used in the course of carrying on the business of farming in Canada by one of the persons specified in subparagraphs (a)(i) to (v) of the definition. Further, the definition provides that property will not be considered to have been used in the course of carrying on the business of farming by the person unless it meets the conditions in either subparagraph (a)(vi) or (a)(vii) of the definition. Subparagraph (a)(vii) applies to property acquired before June 18, 1987 (or after June 17, 1987, under an agreement in writing entered into before that date), and thus is only relevant in relation to the taxpayer's 1/3 interest.
The requirement in subparagraph (a)(vi) of the definition will be met if the property was owned by, among others, the taxpayer or a spouse, child, or parent of the taxpayer, throughout the 24 months preceding the disposition of the property and, in at least 2 years while the property was so owned, the gross revenue of such an individual from the farming business carried on in Canada in which the property was principally used, and in which such an individual was actively engaged on a regular and continuous basis exceeded the person's income from all other sources for the year. In our view, the individual meeting the gross-revenue test in subparagraph (a)(vi) need not be the person who owns the property and may be the spouse, child or parent of such an individual. For example, if a parent has met the gross revenue test in at least two years while he or she owned the property, and the parent later transfers the property to a child, the requirements of clause (a)(vi)(A) of the definition of qualified farm property in subsection 110.6(1) of the Act may be met even though the child has not farmed the property. In this regard, a parent includes a father-in-law pursuant to subparagraph 252(2)(a)(iii) and paragraph 252(1)(c) of the Act.
Based on the foregoing, the 24-month gross revenue test in subparagraph (a)(vi) may be satisfied by the taxpayer's father-in-law, assuming the father-in-law relationship existed throughout the applicable 24-month period. However, the determination of whether real property was used principally by an individual in carrying on a farming business, whether an individual was actively engaged on a regular and continuous basis, and whether a particular operation constitutes a farming business at any particular time are all questions of fact. Accordingly, you should contact the applicable local tax services office if you require an answer based on an actual review of all of the surrounding facts.
Under subparagraph (a)(vii) of the definition, which is only relevant in respect of the taxpayer's 1/3 interest in land, property must have been used by, among others, the taxpayer or a spouse, child or parent of the taxpayer principally in carrying on the business of farming in Canada, either in the year the property is disposed of, or in at least five years during which it was owned by, among others, the taxpayer or the spouse, child or parent of the taxpayer. Similar to our comments regarding subparagraph (a)(vi), the taxpayer's father-in-law may satisfy the use test in subparagraph (a)(vii) provided the father-in-law relationship existed throughout the applicable 5-year period. However, the determination of whether the property was used by the father-in-law principally in carrying on the business of farming in Canada can only be made by the applicable local tax services office since it involves questions of fact.
We trust that these comments will be of assistance.
Yours truly,
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
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