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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues:
(1) Whether the purchase of water rights years ago should have been capitalized to the cost of land or an eligible capital property.
(2) If so, and the amount was capitalized to land, should it now be capitalized as an eligible capital property and form part of the calculation of cumulative eligible capital?
(3) What are the implications on the sale of the water rights - is it qualified farm property? Is it an eligible capital amount or proceeds for the sale of land?
Position:
Insufficient information to provide comments given changes to the Act, ITAR's and ITR. Suggested that critical information be presented to the relevant Tax Services Office.
Reasons:
The request did not contain sufficient information to enable us to provide any comments with respect to the questions raised in the letter. To begin answering the inquiry, information, such as dates of transactions, relevant agreements and whether the owner of the property is a corporation or an individual, is necessary.
The matter is not an interpretive issue, but addressing an actual fact situation with completed and ongoing transactions. It is the role of the Tax Services Office to address such inquiries.
XXXXXXXXXX 2001-009238
Randy Hewlett, B.Comm.
December 14, 2001
Dear XXXXXXXXXX:
Re: Classification of Payments for Water Rights and Eligibility of
Water Rights for the Capital Gains Exemption as Qualified Farm Property
We are writing in response to your letter dated July 12, 2001, wherein you requested our opinion on the above-noted issue.
In your letter you indicate that recent changes to the Irrigation Act and the Water Act in Alberta will permit a farmer to sell another farmer the right to irrigate land, providing both are within the same irrigation district. These rights were purchased by farmers many years ago from the responsible government authority, and were capitalized for income tax purposes to land, since it was considered to be a permanent improvement to the land. In your view, the changes to the legislation governing water rights appears to result in the water right now being a separate asset that should not be added to the cost of land. You feel that the purchase of a water right is likely an eligible capital expenditure.
You inquire whether the purchase of water rights is indeed an eligible capital expenditure. As well, you ask whether the water rights would be "qualified farm property" eligible for the capital gains exemption. Further, should the water rights acquired years ago and capitalized to land be reclassified for tax purposes as an eligible capital expenditure? In your view, this would ensure that the true gain on a resale of the water rights and/or the land would be properly calculated.
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, Advance Income Tax Rulings, dated January 29, 2001. It appears that the particular transactions in your situation are ongoing and/or completed. Therefore, the inquiry should be addressed to the relevant Tax Services Office (TSO).
We note that the situation you describe involves property that was purchased many years ago. Given the numerous changes to the Act and the Income Tax Regulations (the Regulations) since the property's purchase, and the impact that the Income Tax Application Rules may have, it is not possible to determine the tax implications in your situation without all the relevant facts.
Since the issues in question involve transactions that occurred some time ago, we suggest that you present all of the facts to your local TSO for a resolution, as discussed in paragraph 22 of IC 70-6R4. In order to answer the questions raised in your letter, we feel that you would need to provide all critical information such as, the dates of transactions, relevant agreements, who the owner of the property may be, etc.
We trust our comments will be of assistance to you.
Yours truly,
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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