18 June 2002 External T.I. 2002-0126945 - qualified farm property

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 land owned by the taxpayer constitutes "qualified farm property"?

Position: Perhaps

Reasons: We have not been provided with enough detail to make such a determination. Only general comments have been provided.

XXXXXXXXXX 		2002-012694
		Karen Power, C.A.
(613) 957-8953
June 18, 2002

Dear XXXXXXXXXX:

Re: Qualified Farm Property

This is in reply to your letter of January 3, 2002, which was forwarded to us on March 6, 2002 by the Winnipeg Tax Centre, wherein you requested our views regarding a particular parcel of land qualifying as "qualified farm property" pursuant to the definition of this term in subsection 110.6(1) of the Income Tax Act (the "Act"). We apologize for the delay in responding to you.

Our Comments

The particular situation outlined in your letter appears to relate to a factual one, involving a specific taxpayer. As explained in Information Circular 70-6R5, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an Advance Income Tax Ruling. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate tax services office for their views. However, we are prepared to offer the following general comments which may be of assistance.

Under the definition of "qualified farm property" in subsection 110.6(1) of the Act (hereinafter referred to simply as the "definition"), the property must have been used in the course of carrying on the business of farming in Canada by the individual, a spouse, child or parent of such a person, a family farm partnership in which any of the above persons have an interest or a personal trust from which the person acquired the property. Further, the definition provides that property will not be considered to have been used in the course of carrying on the business of farming by the person unless it meets the conditions in either subparagraph (a)(vi) or (a)(vii) of the definition. We note that subparagraph (a)(vii) only applies to property acquired before June 18, 1987 (or after June 17, 1987, under an agreement in writing entered into before that date).

The requirement in subparagraph (a)(vi) of the definition will be met if the property was owned by, among others, the taxpayer or a spouse, child, or parent of the taxpayer, throughout the 24 months preceding the disposition of the property and, in at least 2 years while the property was so owned, the gross revenue of such an individual from the farming business carried on in Canada in which the property was principally used, and in which such an individual was actively engaged on a regular and continuous basis exceeded the person's income from all other sources for the year. In our view, the individual meeting the gross-revenue test in subparagraph (a)(vi) need not be the person who owns the property and may be the spouse, child or parent of such an individual. In your situation, if a parent has met the gross revenue test in at least two years while he or she owned the property, and the parent later transfers the property to a child, the requirements of clause (a)(vi)(A) of the definition of qualified farm property in subsection 110.6(1) of the Act may be met even though the child has never farmed the property. However, the determination of whether real property was used principally by an individual in carrying on a farming business, whether an individual was actively engaged in the farming business on a regular and continuous basis, and whether a particular operation constitutes a farming business at any particular time are all questions of fact.

Under subparagraph (a)(vii) of the definition, property must have been used by, among others, the taxpayer or a spouse, child or parent of the taxpayer principally in carrying on the business of farming in Canada, either in the year the property is disposed of, or in at least five years during which it was owned by, among others, the taxpayer or the spouse, child or parent of the taxpayer. Similar to our comments regarding subparagraph (a)(vi), the taxpayer's father may satisfy the use test in subparagraph (a)(vii). However, the determination of whether the property was used by the father principally in carrying on the business of farming in Canada remains a question of fact.

We trust our comments will be of assistance to you.

Mickey Sarazin, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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