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: 1. Would the fact that Mr. A owns multiple farm properties and farm corporations limit his ability to transfer said properties pursuant to subsections 70(9.01) and 70(9.21) of the Act? 2. Would the fact that Mr. A works on more than one farm preclude a conclusion that he works on a "regular and continuous basis" on any of the farms? 3. If all of the farms were merged (by amalgamating all XXXXXXXXXX corporations and by Mr. A transferring his XXXXXXXXXX farm properties into the amalgamated corporation), and provided that all XXXXXXXXXX farms could be considered one business, would this result in a different conclusion to the first two issues above?
Position: 1. No; 2. No; 3. No
XXXXXXXXXX 2008-030376
June 18, 2009
Dear XXXXXXXXXX :
Re: Subsections 70(9), (9.1), (9.2) and (9.21) of the Income Tax Act
This is in reply to your letter of December 2, 2008 in which you requested our comments with respect to the application of the above-referenced subsections of the Income Tax Act (the "Act") to a hypothetical intergenerational rollover of farm property.
In the particular situation provided with your submission, the given facts were as follows:
Mr. A is a resident of Canada, as are his XXXXXXXXXX children, all of whom are over 18 years of age. Mr. A operates XXXXXXXXXX non-adjacent farms, XXXXXXXXXX of which he owns directly, with the remaining XXXXXXXXXX being held indirectly through XXXXXXXXXX corporations. All XXXXXXXXXX corporations are Canadian-controlled private corporations and each is wholly-owned by Mr. A. There is considerable interconnection among the operation of the XXXXXXXXXX farms.
Each of the farmlands that are owned directly by Mr. A are used exclusively for the business of raising livestock. Mr. A works full-time on his farms and provides direct hands-on management of all of the farming operations. The farmlands and other farm related assets of the farm corporations are located in Canada and represent all of the assets of each of these corporations.
We have assumed for discussion purposes that throughout the period of direct ownership by Mr. A or indirectly through his corporations, there have been no changes in use of any of the XXXXXXXXXX farmlands and their farm related assets.
You requested our comments in regard to three issues relating to the above hypothetical fact scenario:
1. Would the fact that Mr. A owns multiple farm properties and farm corporations limit his ability to transfer said properties pursuant to subsections 70(9.01) and 70(9.21) of the Act?
2. Would the fact that Mr. A works on more than one farm preclude a conclusion that he works on a "regular and continuous basis" on any of the farms?
3. If all of the farms were merged (by amalgamating all XXXXXXXXXX corporations and by Mr. A transferring his XXXXXXXXXX farm properties into the amalgamated corporation), and provided that all XXXXXXXXXX farms could be considered one business, would this result in a different conclusion to the first two issues above?
Our comments
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. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to offer the following general comments.
In general, subsection 70(9) allows land in Canada or depreciable property in Canada of a prescribed class, that is held by a taxpayer, to be transferred on a tax-deferred basis on death to a child of the taxpayer, pursuant to subsection 70(9.01) of the Act, where the following requirements are met:
(a) The property was, before the taxpayer's death, used principally in a farming business carried on in Canada in which the taxpayer, the spouse or common-law partner of the taxpayer, or a child or parent of the taxpayer, was actively engaged on a regular and continuous basis;
(b) The child was resident in Canada immediately before the day the taxpayer died; and
(c) As a consequence of the taxpayer's death, the property is transferred to and becomes vested indefeasibly in the child within 36 months after the taxpayer's death.
A similar transfer is provided for on the death of a taxpayer in subsection 70(9.21) of the Act for shares of a family farm corporation, where the three conditions in subsection 70(9.2) are met. The latter two conditions in subsection 70(9.2) are identical to those in subsection 70(9) of the Act (see (b) and (c) above). In addition, the property transferred must have been, immediately before the death of the taxpayer, one of the properties listed in paragraph 70(9.2)(a), which includes a share of the capital stock of a family farm corporation.
A share will be a "share of the capital stock of a family farm corporation" of an individual at a particular time, as that term is defined in subsection 70(10) of the Act, if, inter alia, the share was owned by that person and all or substantially all of the fair market value of the property owned by the corporation was attributable to property that has been used by the person, or by any of the persons or partnership described in subparagraphs (a)(i) to (iv) of the definition, principally in the course of carrying on a farming business in Canada in which the person, or a spouse, common-law partner, child or parent of the person, was actively engaged on a regular and continuous basis.
For purposes of the above transfers pursuant to subsections 70(9) and 70(9.2), the term "child" has the extended meaning as provided for in the definition of "child" in subsection 70(10) of the Act.
For purposes of a transfer pursuant to subsection 70(9.2) of the Act, it is a question of fact as to whether all or substantially all of the property of a corporation is attributable to use principally in the course of carrying on a farm business. Similarly, for purposes of a transfer pursuant to subsection 70(9), it is a question of fact whether the land and/or depreciable property to be transferred was used principally in a farming business.
As is noted in paragraph 27 of Interpretation Bulletin IT-268R4, it is also a question of fact whether a person is "actively engaged on a regular and continuous basis" in the business of farming. Such a determination will require full consideration of the unique facts in a given situation. A person may be considered "actively engaged on a regular and continuous basis" when the person is "actively engaged" in the management and/or day-to-day activities of the farming business. Ordinarily the person would be expected to contribute time, labour and attention to the business to a sufficient extent that such contributions would be determinant in the successful operation of the business. Whether an activity is engaged on a "regular and continuous basis" is also a question of fact but an activity that is infrequent or activities that are frequent but undertaken at irregular intervals would not meet the requirement.
In our view, the fact that Mr. A owns multiple farm properties and farm corporations, would not, in and of itself, limit his ability to transfer the properties pursuant to subsections 70(9.01) and 70(9.21) of the Act. Nor would the fact that Mr. A works on more than one farm, in and of itself, lead to a conclusion that he was not actively engaged on a "regular and continuous basis" on any of the farms.
However, in our view, where the transfer of multiple properties pursuant to subsection 70(9) and/or subsection 70(9.2) is contemplated, it will be necessary to separately determine, for each property, whether the conditions noted above are met.
Yours truly,
Robin Maley
For Director
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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