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: Must a partnership have been in existence for at least 24 months in order to qualify as an "interest in a family farm partnership" as defined is subsection 110.6(1)?
Position: Yes
Reasons: If a partnership has not been in existence for at least 24 months, it cannot meet the "throughtout any 24-month period ending before that time" condition in paragraph (a) of the definition of an "interest in a family farm partnership".
2004-007504
XXXXXXXXXX Karen Power, CA
(613) 957-8953
October 21, 2004
Dear XXXXXXXXXX:
Re: Qualified Farm Property
We are writing in reply to your letter of May 4, 2004, requesting 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, your concern relates to whether a partnership must be in existence for at least 24 months before an interest in the partnership can be considered as an "interest in a family farm partnership".
The particular circumstances in your letter on which you have asked for our views involve a factual situation concerning 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. However, we are prepared to offer the following general comments, which may be of assistance.
As you are aware, where a partnership, an interest in which is an "interest in a family farm partnership", 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 an 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 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. As the property referred to in your letter was last acquired after June 17, 1987, the requirements of subparagraph (a)(vi) of the definition must also be met.
The definition in subsection 110.6(1) of an "interest in a family farm partnership" of an individual at any time requires 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 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, 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.
An interest in a partnership could not be considered an interest in a family farm partnership for the purposes of section 110.6 of the Act at any time if at that time the partnership was not in existence for at least 24 months, as it could not meet the "throughout any 24-month period ending before that time" requirement. Consequently in the situation you describe, where farm land is transferred to a newly created partnership, we would agree that the farm land cannot be considered "qualified farm property" when it is subsequently sold, unless the partnership has been in existence for at least 24 months and all other relevant requirements of the definition of "qualified farm property" and "interest in a family farm partnership" have been met. It would also be necessary to consider whether subsections 69(11) and 110.6(11), and section 103 of the Act could apply.
We trust that our comments are 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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