19 February 2002 Internal T.I. 2002-0121137 - CASH ADVANCES

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: What crops qualify for "cash advances" received under the Advance Payments Program offered pursuant to the Agricultural Marketing Programs Act?

Position: Such a question is best answered by the staff of Agriculture and Agri-Food Canada.

Reasons: The above Department is responsible for the Agricultural Marketing Programs Act.

		February 19, 2002

	Northern BC & Yukon TSO	HEADQUARTERS
	Liliane Basi	Jacques E. Grisé
	Client Services	957-2059

2002-012113

Farming Income - Cash Advances

This is in reply to your e-mail of January 30, 2002, concerning cash advance payments received by taxpayers carrying on a farming business, who elect under subsection 28(1) of the Income Tax Act to use the "cash method" of reporting income.

Basically, the cash method income or loss is calculated as the difference between the cash revenue received in the year and the cash revenue expenditures paid in the year with appropriate adjustments for non-cash items such as capital cost allowance and the recapture of capital cost allowance. Accordingly, an advance payment for a crop received by a farmer using the cash method from the person purchasing the farmer's crop is included in the farmer's business income when received.

You note that the Farming Income guide refers to cash advances received under a program stemming from the Agricultural Marketing Programs Act (AMPA), as not being taxable. The advances under this program are effectively loans that are required to be repaid when the stored crop or crops are subsequently sold. Farming income is triggered at the time of sale when the advance is repaid. The reference to the above program is made under the heading "Line 9370 - Total grains and oilseeds" which leaves the impression that the program is restricted to crops of grains and oilseeds.

Subsection 2(1) of the AMPA defines "crop" for purposes of the AMPA as follows:

"crop" means

(a) one or more field crops, or a portion of one or more field crops, grown in Canada, either cultivated or uncultivated, and stored in a non-processed form;
(b) maple syrup or honey produced in Canada; or
(c) any other agricultural product designated by the Governor in Council under subsection (2).

The overview of the Advance Payments Program (APP) set out in Agriculture and Agri-Food Canada's Internet site (http://www.agr.gc.ca) states, in part:

"All crops storable in their natural state, as well as honey and maple syrup are eligible under the APP."

A staff member of Agriculture and Agri-Food Canada indicated that the APP could apply to such crops as apples, pears and potatoes. Further information on the APP may be obtained at the above Internet site or by contacting Agriculture and Agri-Food Canada.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Agency's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version, or they may request a copy severed using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Jackie Page at 613 957-0682. A copy will be sent to you for delivery to the client.

John Oulton, CA
Manager
Business and Individual Section
Business and Partnerships Division
Income Tax Rulings Directorate

cc - Mr. J.C. Laporte

Acting Manager
Business Publications Section
Client Services Directorate

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