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:
Clarification of opinion E 2000-005400. Where grape growing and wine making is a single business:
(1) Is it farming?
(2) How is inventory valued?
Position:
(1) The business is wine-making.
(2) Inventory is valued at cost.
Reasons:
(1) IT-206R; the purpose of the grape-growing activity is to supply raw materials used in the wine-making business.
(2) Subsection 10(1).
XXXXXXXXXX 2001-008931
Randy Hewlett, B. Comm.
September 5, 2001
Dear XXXXXXXXXX:
Re: Opinion 2000-005400
We are writing in response to your letter dated June 14, 2001, wherein you requested clarification on an issue in the above-noted opinion sent to you on January 17, 2001.
The opinion addressed the issue of whether grape-growing and wine-making were separate businesses and how inventory is valued.
Your inquiry concerns our opinion that the grape-growing and wine-making were likely one business. You have inquired whether the business is grape-growing or wine-making, since if it is grape-growing, the taxpayer is engaged in a farming activity and can expense the cost of producing inventory in the year the expenses are incurred.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R4, Advanced Income Tax Rulings, dated January 29, 2001. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.
Our position is that the two activities were likely one business since the grape-growing activity was in existence primarily to supply the wine-making activity with raw materials. Our interpretation is explained in the second paragraph under the heading "Our views" in our letter of January 17, 2001:
When determining the degree of interconnection, interlacing or interdependence between simultaneous business operations, we consider the various factors listed in paragraph 3 of IT-206R, "Separate businesses." In this regard, we refer you to, in particular, the comments in paragraph 3(c), wherein it discusses the situation where one operation exists primarily to supply the other. It gives the example of a market-garden operation which operates chiefly for the purpose of supplying a hotel with fresh produce. It explains that, in these circumstances, the two operations likely should be regarded as one business, even if a small amount of the market-garden produce is sold elsewhere. Accordingly, since you stated that the taxpayer uses some or all of its grapes from the vineyard in its wine-producing business, it is likely that the operation of the vineyard and the wine-processing business by the taxpayer should be regarded as one business.
We are referring to the single business as a wine-making operation. In our view, the purpose of the grape-growing activity is to supply raw materials for the wine-making business. As a result, the inventory of the business would have to be valued in accordance with subsection 10(1) of the Income Tax Act. Consequently, the cost of growing the grapes must be included in inventory.
We trust our comments will be of assistance to you.
Yours truly,
Terry Young, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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