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: Whether the Prince Edward Island Department of Agriculture must issue information slips to recipients under the Agri-Food Promotion Program ("AFPP") or the Agri-Food Market Development Program
Position: No in respect of AFPP payments. To the extent that AFMDP payments are made to persons engaged in the business of farming, yes.
Reasons: The law
November 24, 2008
Charlottetown TSO HEADQUARTERS
James Atkinson CGA
(519) 457-4832
Attention: John Oatway
2008-029515
Buy PEI Initiative
Agri-Food Promotion Program
Agri-Food Market Development Program
This is in response to your email dated October 1, 2008 concerning the above-named programs. In your email, you requested our opinion on whether a payment under the above-noted programs would qualify as a "farm support payment" (defined in subsection 234(2) of the Income Tax Regulations) and whether the payor, the Prince Edward Island Department of Agriculture ("DOA"), would be obligated to issue AGR-1 tax forms in respect of payments made to participants in the above-named programs.
Our understanding of these programs, based on the information you have provided, and as gleaned from the DOA's website (www.gov.pe.ca/af/index.php3), is as follows:
Agri-Food Promotion Program ("AFPP")
The AFPP was established to increase the awareness, demand, and consumption for fresh, high-quality Prince Edward Island (PEI) agricultural products. Government assistance is available up to 50% of the "eligible costs" for an "eligible project" to a maximum of $1,000 per project and $2,000 per applicant. Financial support offered by the DOA is to be matched by equal or greater financial contribution by the applicant.
Eligible applicants under the AFPP are groups (e.g., youth clubs, WI, agricultural clubs, etc.), institutions and municipalities.
Eligible projects must improve the visibility and knowledge of locally produced products and the individuals that produce them; make the connection between PEI farming and the agri-food sector; encourage the importance of using locally produced foods to create healthy eating habits and making informed consumer choices; and/or, create an awareness of the important value of the Prince Edward Island agri-food sector. Eligible expenses include the costs associated with the implementation of the approved project.
Agri-Food Market Development Program ("AFMDP")
The AFMDP was established to build and enhance local markets to increase the sale and consumption of Prince Edward Island produced agri-food products. There are four components to the program:
- road signage (development and improvements of signage incorporating the "Buy PEI" logo in respect of PEI agri-food products),
- promotion (design and printing of brochures, posters, signs other than road signs, background materials, maps, recipes, and related materials in respect of PEI agri-food products),
- training (conferences, workshops, courses, etc. specifically designed to enhance the knowledge and skills of marketing PEI agri-food products), and
- new product development/market launch (design and development of packaging, labeling; product testing associated with the purchase of equipment to package and label new products; registration for nutrition labelling/health claim requirements).
The maximum assistance per applicant per fiscal year for all components combined is $10,000.
Eligible applicants may be farmers, farmers' markets, farm markets, agricultural commodity or marketing boards, or others approved upon special request.
Eligible projects must improve the visibility of locally produced products and the individuals that produce them; attract a wider range of clientele to local products; increase the promotional activity of PEI produced agri-food products; and/or, promote the sale and consumption of PEI agri-food products. Eligible expenses include the costs associated with the implementation of the approved project.
Our Comments:
Useful comments in respect of the tax treatment of government assistance can be found in Interpretation Bulletin IT-273R2, Government Assistance - General Comments.
Part II of the Income Tax Regulations ("Regulations") imposes an obligation on persons who make certain payments to file information returns. These provisions can apply to a wide variety of payments, including certain forms of government assistance. Whether the DOA is obligated to issue tax forms in respect of payments made to participants in the AFPP or AFMDP rests substantially upon the determination whether such payments are included in any of the provisions listed in Part II of the Regulations.
Pursuant to subsection 234(1) of the Regulations, every government, municipality or municipal or other public body or producer organization or association that makes a payment of an amount that is a "farm support payment" ("FSP") to a person or partnership is required to make an information return in prescribed form in respect of the amount (AGR-1). A FSP is defined in subsection 234(2) of the Regulations to include a payment that is computed with respect to an area of farm land; 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 a rebate of, or compensation for, all or a portion of cost or capital cost incurred in respect of farming, or, unsowed or unplanted land or crops, or destroyed crops, farm animals or other farm output.
In our view, based on the information provided, payments made under the AFPP do not appear to constitute FSPs as the business activities, if any, of the applicants would not appear to constitute farming, nor do the payments otherwise appear to meet the definition of FSP. Consequently, there is no obligation to file an AGR-1 information return in respect of payments under that program.
The circumstances under which payments may be made under the AFMDP are broad. Whether or not a contribution payment under the AFMDP qualifies as a FSP in respect of which an AGR-1 information return is to be filed would depend on the circumstances of the case under review, with particular emphasis on the determination of (a) whether or not the person receiving the payment was "farming" for purposes of the Act, and (b) whether the payment could be regarded as a rebate of, or compensation for, all or a portion of a cost or capital cost in respect of farming.
The description of eligible applicants for the program, as indicated on the DOA website, includes persons who would be considered to be engaged in a farming business (i.e., farmers) as well as other persons who would likely not be considered to be engaged in a farming business (i.e., farm markets, agricultural commodity and marketing boards).
Whether or not a person is carrying on a farming business is a question of fact, which can only made on a case-by-case basis. The definition of "farming" in subsection 248(1) of the Act includes the "tillage of the soil, livestock raising or exhibiting, maintaining of horses for racing, raising of poultry, fur farming, dairy farming, fruit growing and the keeping of bees." This list is not exhaustive. The courts have held that farming generally involves the whole aspect of commercial production of any crop or plant that has economic value. However, activities such as the resale of agricultural goods, the processing of agricultural goods, and the provision of services ancillary to farming activities, generally do not constitute farming, unless those activities are incidental to other farming activities which constitute a farming business.
To the extent that payments under the AFMDP are made to a person carrying on a farming business and are in respect of the cost of an asset or the amount of an expense of the business, they would qualify as FSPs and, pursuant to subsection 234(1) of the Regulations, the DOA would have the obligation to make an information return in prescribed form in respect of the amounts (AGR-1). Should you have questions concerning assistance payments in a specific case, we would be pleased to offer further assistance and guidance in making a determination as to whether such assistance payments are FSPs that are required to be reported on an AGR-1 information return.
We trust that these comments will be of assistance.
Yours truly,
S. Parnanzone
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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