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:
Taxation of advances received by cash basis farmers.
Position TAKEN:
Clarification. Generally taxable when received.
Reasons:
Error in original letter.
XXXXXXXXXX 2002-012390
T. Young, CA
February 21, 2002
Dear XXXXXXXXXX:
Re. Advances Received by a Cash Basis Farmer
We are writing to you in follow-up to our letter of February 6 (our reference 2002-011988), concerning the taxation of advances received by a cash basis farmer.
In our original letter, we stated the following:
Advances received by farmers who report their income using the cash method are generally treated as loans and would not be reported as income until the time an actual sale takes place. For example, advances received under the Agricultural Marketing Programs Act are treated as loans. However, whether an amount is, in fact, an advance or is received as payment for a sale is a question of fact and must be determined on a case-by-case basis.
We would like to clarify that, although the determination of whether or not advances are income in the year received is a question of fact, we have found that cash advances received for crops are generally income when received. Further, advances received under the Agricultural Marketing Programs Act are loans and income is reported when the crops securing the loans are sold and the proceeds used to repay the loans.
With respect to the amounts shown in the document titled "Advance Details", in our view the $8,046.75 was either income from sales on December 1 and 2, 1999, or received in respect of future sales and required to be included in income pursuant to paragraph 12(1)(a) of the Income Tax Act (the "Act"). In either case, the entire amount should be included in income on December 15, 1999, the date the advance was received. In this respect, please refer to paragraph 28(1)(a) of the Act.
This letter is issued as a clarification only. We hope that it will be helpful.
Yours truly,
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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