6 December 2000 Internal T.I. 2000-0058067 - SHARECROPPIG-RENTAL OR FARMING 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 landlord who, in addition to providing the farmland, is also involved in raising crops on the land, should report his share of the crops as rental income or farming income.

Position: Likely farming.

Reasons:   Since the taxpayer pays for the fuel for the tractor and helps his father raise the crops, his involvement appears to go beyond that of a typical landlord in a sharecropping arrangement
		December 6, 2000

	TORONTO CENTRE TSO			HEADQUARTERS
	Business Window				J. Gibbons
(613) 957-2135
	Attention:  D. Ford
							2000-005806

Nature of Income - Property or Business?

We are replying to your facsimile dated November 23, 2000, in which you requested further clarification concerning the characterization of income received by a particular taxpayer. It is not clear to you whether such income should be reported as farming income or rental income. In our response to you, we referred to the general guidelines in IT-434R, "Rental of Real Property by Individual," as well as the comments in IT-433R on sharecropping.

Interpretation Bulletin IT-434R provides general guidelines for distinguishing between rental income and business income. Although this bulletin describes situations involving the rental of buildings, it is our view that the principles described therein are also relevant in a situation involving "sharecropping" and the rental of farmland. That is, it is the nature and extent of services provided by a "landlord" that determines whether the income received by the landlord should be considered rental income or property income.

In the situation you described, the taxpayer pays for the fuel for the tractor and "helps the father raise the crops." Since the taxpayer's involvement appears to go beyond that of a typical landlord in a sharecropping arrangement, we are inclined to the view that the taxpayer should report his income as farming income. However, you should note that an actual determination can only be made following a review of the actual facts and circumstances. Since this can only be determined through an audit investigation, we suggest that you contact the technical advisor in the Audit Division of your office if further assistance should be required.

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 i 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