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 land held in second tier partnership qualified farm property
Position: No
Reasons: The second-tier partnership is not owned by an individual.
XXXXXXXXXX 2001-006915
Cornelis Rystenbil, CGA
June 4, 2001
Dear XXXXXXXXXX:
Re: Two-tiered Partnership and Qualified Farm Property
This is in reply to your letter of January 26, 2001 in which you ask our views on several scenarios involving a two-tiered partnership and a corporation, in relation to qualified farm property and qualified small business corporation shares.
Please note that written confirmation of the consequences inherent in particular transactions is given by this directorate only where 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. In addition, as indicated in paragraph 15(d) of the circular, we do not rule where the request contains alternative courses of action.
As discussed in our telephone conversation of March 14, 2001, (Rystenbil/XXXXXXXXXX), the scope of your request is beyond that of a technical interpretation and appears to be related to an actual proposed transaction. We would also note that your request is more in the nature of tax planning. The Canada Customs and Revenue Agency (CCRA) does not provide tax planning advice. You subsequently amended your request to only deal with the third scenario. In this scenario, two partnerships each own a 50% interest in a bottom-tier partnership. The bottom-tier partnership owns land (which it is proposing to sell) that is used in the farming business of a corporation that it wholly owns. Your question is whether the land would be qualified farm property to the individuals who own the top-tier partnerships by virtue of subparagraph (a)(iv) of the definition of "qualified farm property" (QFP) in subsection 110.6(1) of the Income Tax Act ( the "Act"). As discussed, we are prepared to offer the following general comments.
One of the requirements of the definition of QFP is that the property must be owned by, inter alia, the individual or a partnership an interest in which is an interest in a family farm partnership of specified individuals. Since an interest in the bottom-tier partnership is not owned by an individual, this "owned ... by" requirement has not been met. We would also note that the definition of "interest in a family farm partnership" in subsection 110.6(1) of the Act is also clear that the partnership interest must be "owned by" an individual.
Furthermore, in the above scenario, a corporation uses the land that is owned by the bottom-tier partnership. According to subparagraph (a)(iv) of the definition of QFP, a share of the corporation would have to be owned by a specified individual. The definition of "share of the capital stock of a family farm corporation" in subsection 110.6(1) of the Act also refers to ownership of the share by an individual. As all the shares are owned by a partnership, in the above situation, the "used by" requirement of paragraph (a) and, in particular, subparagraph (a)(iv) of the definition of QFP (vis-à-vis the land) has not been met.
Since, as explained above, both the "owned ... by" and "used by" requirements of the definition of QFP have not been met, in our view, the land in question is not QFP.
In addition to the above, the definition of QFP contains a number of conditions that must be met. We were not provided with any information to establish whether these conditions were met. For the same reason, we could not establish whether other provisions of the Act could apply, such as section 74.2 and subsections 110.6(11), 103(1) and 103(1.1).
We trust that these comments will be of assistance.
Yours truly,
Milled Azzi, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
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