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: In determining whether a real property was used "principally" in the business of farming, within subparagraph (b)(i) of the definition of "interest in a family farm partnership" in subsection 110.6(1), must the asset be used in the business of farming at the time of disposition?
Position: No.
Reasons: In the context of subparagraph (b)(i) of the definition of "interest in a family farm partnership" in subsection 110.6(1), generally it is not solely the current use of the real property that is relevant, but it is the use of the real property over the entire period of ownership. There is no requirement that the property be used immediately before the disposition in the business of farming.
XXXXXXXXXX 2004-006348
Karen Power, CA
(613) 957-8953
July 12, 2004
Dear XXXXXXXXXX:
Re: Qualified Farm Property
We are writing in reply to your letter of February 17, 2004, wherein you request our comments regarding the application of the definitions of "qualified farm property" and "interest in a family farm partnership" in subsection 110.6(1) of the Income Tax Act (the "Act"). In particular, you enquire whether the "principally" test in subparagraph (b)(i) of the definition of "interest in a family farm partnership" requires that real property held by a partnership be used in a farming business at the time of its disposition by the partnership.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. However, we are prepared to provide you with some general comments which may be of assistance.
Where a partnership, an interest in which is an interest in a family farm partnership of an individual, owns the real property it uses in the course of carrying on the business of farming in Canada, such real property may be considered qualified farm property of the individual. The definition of "qualified farm property" in subsection 110.6(1) of the Act provides that a qualified farm property of an individual at any time means a property owned at that time by inter alia the individual or a partnership, an interest in which is an interest in a family farm partnership of the individual, that is real property that was used by persons specified in subparagraphs (a)(i) through (a)(v) of that definition in the course of carrying on the business of farming in Canada. Whether a property is considered to have been used in the course of carrying on the business of farming in Canada, pursuant to subparagraph (a)(vi) or (vii) of the definition, depends on whether the property was last acquired on or before June 17, 1987 or after that date.
The definition in subsection 110.6(1) of the Act of an "interest in a family farm partnership" of an individual at any time requires, in paragraph (a), that throughout any 24-month period ending before that time, more than 50% of the fair market value of the property of the partnership was attributable to certain properties, including property that was used inter alia by the partnership, the individual, or a spouse, common-law partner, child or parent of the individual, principally in the course of carrying on the business of farming in Canada, in which inter alia the individual or a spouse, common-law partner, child or parent of the individual was actively engaged on a regular and continuous basis. In addition, paragraph (b) of the definition of "interest in a family farm partnership" requires that, at that time, all or substantially all of the fair market value of the property of the partnership must be attributable inter alia to property that was used principally in the course of carrying on the business of farming in Canada by the partnership or a person referred to above.
The determination of whether real property is used principally in a particular business is a question of fact. Where reference is made to an asset being used principally in the course of carrying on the business of farming, it is our opinion that the asset will meet this requirement if more than 50% of its use is in the business of farming. In addressing this issue in the context of subparagraph (b)(i) of the definition of "interest in a family farm partnership" in subsection 110.6(1) of the Act, generally, it is not solely the current use of the real property that is relevant, but it is the use of the real property over the entire period of ownership. There is no requirement that the property be used immediately before the disposition in the business of farming.
In your letter, you also refer to another scenario and enquire whether certain property may meet the requirements of the definition of "qualified farm property" in subsection 110.6(1) of the Act. As this definition contains a number of tests and we have not been provided with the relevant facts of the case, we are not in a position to comment on whether the requirements of that definition can be met. Such a determination requires a review of all relevant facts of each case and would best be resolved in the context of an advance income tax ruling.
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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