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.
Principal Issues: Clarification concerning the 2-year gross revenue test in the definition of "qualified farm property" in subsection 110.6(1) of Act.
Position: General comments provided.
Reasons: General comments provided.
2004-005674
XXXXXXXXXX Karen Power, CA
(613) 957-8953
February 25, 2004
Dear XXXXXXXXXX:
Re: Capital Gains Deduction - "Qualified Farm Property"
We are writing in reply to your email of January 15, 2004, wherein you requested clarification regarding the 2 year gross revenue test in clause (a)(vi)(A) of the definition of "qualified farm property" in subsection 110.6(1) of the Income Tax Act (the "Act").
Written confirmation of the tax implications applicable to particular transactions is given by this Directorate only if the transactions are proposed and are the subject of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5. The tax consequences of completed transactions can only be determined after a review of all of the relevant facts and documentation, which is the responsibility of the local tax services office. However, we are prepared to offer the following general comments.
Subsection 110.6(2) of the Act permits a capital gains deduction of $500,000 for an individual resident in Canada throughout the year who disposed of "qualified farm property" in the year. One of the conditions that must be met for real property of an individual to be considered a "qualified farm property" as defined in subsection 110.6(1) of the Act (hereinafter referred to simply as the "definition"), is that the property must have been used in the course of carrying on the business of farming in Canada by, among others, the individual, a spouse, child or parent of the individual, or a family farm partnership in which any of these persons has an interest. Further, the definition provides that property will not be considered to have been used in the course of carrying on the business of farming in Canada unless it meets the conditions in either subparagraph (a)(vi) or (a)(vii) of the definition.
The requirement of clause (a)(vi)(A) of the definition will be met if the property was owned by, among others, the individual, or a spouse, child or parent of the individual, throughout the period of at least 24 months immediately preceding the disposition of the property and, in at least 2 years while the property was so owned, the gross revenue of such a person from the farming business carried on in Canada in which the property was principally used, and in which such a person 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 person meeting the gross-revenue test in clause (a)(vi)(A) need not be the person who owns the property and may, for instance, be the spouse, child or parent of such a person.
We trust our comments will be of assistance to you.
Yours truly,
Milled Azzi, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch
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