Translation disclaimer
This translation was prepared by Tax Interpretations Inc. The CRA did not issue this document in the language in which it now appears, and is not responsible for any errors in its translation that might impact a reader’s understanding of it or the position(s) taken therein. See also the general Disclaimer below.
Principal Issues: [TaxInterpretations translation]
(1) What will the tax treatment be of amounts received by a recipient under the options program who does not otherwise have farm business income?
(2) What will the tax treatment for recipients who otherwise have farming business income?
(3) Are the amounts received income subject to CPP and QPP contributions?
(4) Will the amounts be included in the calculation of earned income as defined in subsection 146(1)?
Position:
(1) Payments made under the Options Program to shareholders or non-farming spouses are taxable as "other income". A T4A statement must be issued to the recipients of the amounts.
(2) Assistance payments received under the Options Program must be included in the calculation of farming business income. An AGR-1 statement must be issued for payments made in the year under the Options Program.
(3) The self-employed person could contribute to CPP.
(4) Yes, if taxable as farm business income.
Reasons:
(1) Application of proposed subparagraph 56(1)(r)(iv) and paragraph 200(2)(c) of the Regulations.
(2) The amounts are taxable under 9(1), 28(1) or 12(1)(x). The terms used in subsections 234(1) and (2) of the Regulation are broad enough to include amounts received under the options program.
(3) General comments provided by CPP/EI Rulings Division
(4) Amounts received under the Options Program as business income are considered to be earned income within the meaning of subsection 146(1)(a)(ii)
XXXXXXXXXX 2007-022824
Julie Racette
January 2, 2008
Dear Sir,
Subject: Canadian Farm Families Options Program
This is in response to your letter of March 9, 2007 requesting our opinion on the tax treatment of financial assistance to farmers under the Canadian Farm Families Options Program (Options Program):
The Options Program is designed to provide farmers and their families with immediate financial assistance and access to professional development services to help them make decisions that will improve their family income.
The Options Program is aimed at farm families with a total family income of less than $25,000 and $15,000 for single farmers.
Farmers must have reported gross farm income of at least $50,000 on their tax return for the 2005 taxation year and must be engaged in regular farming activities in the year the program is applied.
In the case of an incorporated farm business, the family or individual farmer must own at least 20% of the outstanding common shares of the corporation. The shareholder's share of gross farm income in the corporation must be at least $50,000.
Questions
1. What will the tax treatment be of amounts received by a program recipient who does not otherwise have farm business income?
2. What will the tax treatment be for recipients who have farm business income?
3. Are the amounts received income subject to Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) contributions?
4. Will the amounts received be included in computing earned income for the purposes of registered retirement savings plan (RRSP) contributions?
Our Comments
Unless otherwise stated, all statutory references are to provisions of the Income Tax Act (the “Act”) or one of its provisions.
1. Program recipients who do not have any other farm income (shareholders, spouses without a farm business)
Bill C-10, which received second reading on December 4, 2007, proposes to add new subparagraph 56(1)(r)(iv). Proposed subparagraph 56(1)(r)(iv) applies to the 2003 and subsequent taxation years. It provides that income replacement benefits received under government assistance programs that are similar to those provided under the Employment Insurance Act are to be included in computing the recipient's income. In our view, payments under the Options Program to non-farming shareholders or spouses are taxable pursuant to proposed subparagraph 56(1)(r)(iv).
Also, pursuant to paragraph 200(2)(c) of the Income Tax Regulations ("Regulations"), a person who makes a payment in the form of an amount that is required to be included in computing a taxpayer's income pursuant to paragraph 56(1)(r) is required to file a T4A information slip. Consequently, amounts paid under the Options Program must be reported in Box 28 - Other Income of the T4A information slip.
2. Program recipients who otherwise have a farming business income.
In our view, assistance payments received pursuant to the Options Program will be required to be included in computing farming business income pursuant to subsection 9(1), or subsection 28(1) if the taxpayer has elected the cash method.
Under the provisions of subsection 234(1) of the Regulations, every government, municipality, municipal body or other public body or commodity organization or association that pays an amount to a person or partnership that is a farm assistance payment is required to file an information return in the prescribed form in respect of such an amount (AGR-1). Subsection 234(2) of the Regulations defines a farm support payment as including a payment that is:
(a) a payment that is computed with respect to an area of farm land;
(b) a payment that is made in respect of a unit of farm commodity grown or disposed of or a farm animal raised or disposed of; and
(c) a rebate of, or compensation for, all or a portion of
(i) a cost or capital cost incurred in respect of farming, or
(ii) unsowed or unplanted land or crops, or destroyed crops, farm animals or other farm output.
The provisions in subsections 234(1) and (2) of the Regulations are essentially intended to ensure that farmers who receive assistance payments for their farming businesses comply with the income inclusion requirements of the Act. In our view, the definition of "farm support payment" in subsection 234(2) of the Regulations is not in itself limiting and is broad enough to include amounts of assistance received by virtue of the Options Program. To this end, Agriculture and Agri-Food Canada should issue an AGR-1 information slip for payments made in the year under the Options Program.
3. Liability for CPP and QPP contributions
With respect to the question of whether or not amounts received under the Options Program should be subject to CPP or QPP contributions, we wish to inform you of the following criteria:
- he or she is 18 years of age or older, but under 70 years of age
- is in pensionable employment during the year; and
- not receiving a CPP retirement or disability pension.
Under the Options Program, financial assistance is paid by Agriculture and Agri-Food Canada directly to farmers or their families. Therefore, this situation does not satisfy all of the above conditions since the individual is not in pensionable employment with the payer (Agriculture and Agri-Food Canada) in an employer/employee relationship.
We wish to bring to your attention that if you are unsure of the status of your employment or the employment status of a worker, you may request that the employment status be determined by completing form CPT1 Request for a CPP/EI Ruling – Employee or Self-Employed?
For more information, you can visit our web address on the Canada Revenue Agency website at http://www.cra-arc.gc.ca/tax/home/cppeiworks-e.html.
As to whether or not amounts received under the Options Program would be subject to the QPP, we suggest that you contact the appropriate authority, the Ministère du revenu du Québec (MRQ), which is responsible for administering the QPP in the province of Quebec.
4. Calculation of earned income for RRSP contribution purposes.
Subparagraph (a)(ii) of the definition of "earned income" in subsection 146(1) specifically provides that the taxpayer’s income for a period in the year throughout which the taxpayer was resident in Canada from a business carried on by the taxpayer either alone or as a partner actively engaged in the business, is included in earned income. Consequently, amounts paid pursuant to the Options Program and included in computing the taxpayer's farming business income pursuant to subsection 9(1) or 28(1) are considered to be "earned income".
Under paragraph (b) of the definition of "earned income" in subsection 146(1), earned income includes an amount included under paragraph 56(1)(b), (c.1), (c.2), (g) or (o) in computing a taxpayer's income for a period in the year throughout which the taxpayer was resident in Canada. However, there is no provision under that definition for the inclusion of amounts included under subparagraph 56(1)(r)(iv).
We hope that the above comments will be of assistance.
Best regards,
Louise J. Roy, CGA
Interim Manager
Business and Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate.
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