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: For the purposes of applying the definition of qualified farm property, how the election to split pension income affects the calculation of the income of the farm operator from all other non farming sources under 110.6(1.3).
Position: Use income under paragraph 3(a) to calculate income from all other non farming sources.
Reasons: Exclude subdivision e deductions and, in particular, the paragraph 60(c) deduction for a split-pension amount.
Kathryn McCarthy CA
May 16, 2012
Re: Split-Pension Income and Qualified Farm Property
This is in response to your e-mail of March 12, 2012, concerning the above-noted subject and further to our telephone conversation on April 18, 2012 (Kathryn McCarthy/XXXXXXXXXX).
You indicated that you and your spouse own a XXXXXXXXXX acre property which was purchased after 1987. The property is used principally in a cash crop farming business carried on by you as a sole proprietorship even though the legal title to the property is in both of your names. You also indicate that you have always earned employment income to support your farming business and that such income (non-farm income) has always exceeded the farming income. Accordingly, any farm losses you incurred were restricted under section 31 of the Income Tax Act (“the Act”).
You indicate that you are now retired from your previous employment and receiving pension income and are working full-time in your farming business. You also indicated that you intend to file a joint election to split your pension income with your spouse and enquired how this pension income will affect the comparison test of farm source gross revenue to other non-farm income sources for the purposes of the $750,000 capital gains exemption.
Generally speaking, under the rules in the Act if a pensioner and a pension transferee have made a joint election to split an amount of qualified pension income received by the pensioner in a taxation year, the pensioner’s net income for income tax purposes is reduced by the split-pension amount (the deduction is reported on line 210 of the T1 return) and the pension transferee’s income is increased by the split-pension amount (the increase is reported on line 116 of the T1 return).
It is a question of fact whether particular property would be considered as “qualified farm property” (“QFP”) as that term is defined in subsection 110.6(1) of the Act for the capital gains deduction on QFP under subsection 110.6(2) of the Act. For the purposes of applying the definition of QFP, the rules in subsection 110.6(1.3) of the Act must also be considered. Further information on these rules is available on the Canada Revenue Agency webpage for Farmers at www.cra-arc.gc.ca/tx/bsnss/sgmnts/frmng/menu-eng.html.
However, as the QFP rules may pertain to your particular situation, the reference to income from a non-farming source would include your total pension income before the deduction for the split-pension amount.
We trust the foregoing comments are of assistance.
Business and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2012
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2012