19 February 2002 External T.I. 2001-0106495 - LIMITED PARTNERSHIP CARRYING ON FARMING

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: If a limited partnership is created for the purpose primarily of working land so it well eventually be certified as an organic farm by a certifying body, would that activity be considered farming according to the Income Tax Act (the "Act")?

Position: generally no - tillage of the soil involves more than just providing a service to the land

Reasons: definition of farming and tillage of the soil

XXXXXXXXXX 2001-010649
Shaun Harkin, CMA
February 19, 2002

Dear XXXXXXXXXX:

Re: Technical Interpretation Request: Limited Partnership

This is in reply to your letter of October 15, 2001 and further to our telephone conversation of February 5, 2002 (Harkin/XXXXXXXXXX) wherein you asked the following questions:

1) If a limited partnership is created for the purpose primarily of working land so it will eventually be certified as an organic farm by a certifying body, would that activity be considered farming according to the Income Tax Act (the "Act")?

2) If the activity described in (1) above is carried on with a reasonable expectation of profit, would a person who purchased a unit of that limited partnership be able to share in the profit and losses of the limited partnership?

3) Is the husbandry of earthworms considered farming according to the Act?

Our Comments

1) The definition of farming in subsection 248(1) of the Act is quite broad and, while not an exhaustive list, specifically includes tillage of the soil. Tillage involves plowing, sowing and raising crops. Normally farming which takes the form of tillage of the soil involves the sale of the resultant crop, and typically the farmer's income will vary depending on the success of his crop each year. In the situation you describe, it does not appear that the limited partnership intends to be involved in the activity of sowing and raising crops. It seems the limited partnership would earn income by providing a service and the partnership's income would be independent of the success or failure of the crop. It would thus appear that the activity you describe would not generally be considered farming.

Although it would appear that the activity you describe is not farming, the activity that the limited partnership will carry on may be considered a business. With respect to whether the limited partnership would be considered to be carrying on a business with a reasonable expectation of profit please see the comments in our letter of May 24, 2000 (copy attached).

2) A partnership calculates its income as if it were a separate person under subsection 96(1) of the Act. The subsequent income or loss of the partnership is allocated to each taxpayer who is a member of the partnership under paragraph 96(1)(f) of the Act for partnership income and under paragraph 96(1)(g) of the Act for losses. Subsection 96(2.1) of the Act provides that where a taxpayer is a limited partner (as defined in subsection 96(2.4) of the Act) of a partnership, the amount of the taxpayer's partnership loss in the year that exceeds his/her at-risk amount (as defined in subsection 96(2.2) of the Act) in the partnership cannot be deducted in computing the limited partner's taxable income for the year and is deemed to be a limited partnership loss. Paragraph 111(1)(e) of the Act provides that a limited partnership loss carried over from prior years may be deducted in a year to the extent of the amount by which the at-risk amount at the end of the year exceeds the partnership losses of the year.

3) It is our opinion that raising worms may qualify as farming provided that the worms are kept by a taxpayer and are maintained and bred under controlled conditions for profit and provided further that the activities in relation thereto are substantial and extensive. However, buying worms for resale and/or simply picking and packing worms for shipment would not be considered to be farming. The above is consistent with the view expressed in Interpretation Bulletins IT-427R and IT-433R (copies attached).

In addition to the copy of our letter dated May 24, 2000 that you indicated you did not receive we have enclosed a copy of Information Circular 70-6R4 titled "Advance Income Tax Rulings".

The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 22 of Information Circular 70-6R4, the above comments do not constitute an income tax ruling and accordingly are not binding on the Canada Customs and Revenue Agency. Our practice is to make this disclaimer in all instances in which we provide an opinion.

We trust the above comments are of assistance.

Yours truly,

Steve Tevlin
for Director
Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

Attachments

??

- 2 -