7 February 2002 External T.I. 2002-0118205 - WHETHER TP ENTITLE. TO DEDUCT. FOR REVENUE

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: Whether a farmer may deduct the value of fruit crop attributable to the land and plant material which the farmer provides to an organization for purposes of horticultural research oriented to the development of production guidelines for commercial producers of native fruit crops.

Position: No.

Reasons: Paragraph 18(1)(a) denies a deduction where no outlay has been made nor expense incurred.

XXXXXXXXXX 	J. Gibbons, CGA
		2002-011820
February 7, 2002

Dear XXXXXXXXXX:

We are replying to your letter sent by facsimile on January 15, 2002, in which you enquired whether a farmer may deduct the value of fruit crop attributable to the land and plant material which the farmer provides to your organization for research purposes. Your organization is involved in horticultural research oriented to the development of production guidelines for commercial producers of native fruit crops.

As requested, we have considered the situation outlined in your letter and have provided some comments below. However, we cannot confirm the tax implications of particular transactions unless 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. Thus, our comments are of a general nature only.

In your letter, you indicated that your concern relates to certain projects, such as screening experimental pesticides, in which the fruit grown and used for study cannot be sold, thereby resulting in a loss of revenue to the farmer (herein referred to as "foregone revenue"). In your view, the foregone revenue is quantifiable since the yield from the test plot can be measured, and the fruit value can be determined based on sales for that season.

Under paragraph 18(1)(a) of the Income Tax Act, only actual outlays or expenses are deductible in computing business or property income. This is supported by the courts in cases such as the Federal Court of Appeal's decision in Buck Consultants v. The Queen (2000 DTC 6015). Accordingly, it is our view that no deduction would be permitted for the value of foregone revenue since no outlay has been made nor expense incurred by the farmer. However, it should be noted that the farmer's income is evidently less because of the foregone revenue.

We trust that these comments will be of assistance.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate

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