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. Are the views expressed in technical interpretation 2000-0011595 still valid? 2. For the purpose of determining whether a particular property owned by a family farm corporation, has been principally used in the business of farming by an eligible person could such period include a period of time where the land was only rented or leased by an eligible person.
Position: 1. The comments in document 2000-0011595 are still valid. 2. See response but yes.
Reasons: The law
XXXXXXXXXX
2012-045788
S. D'Angelo
December 24, 2012
Dear XXXXXXXXXX:
Re: Share of a capital stock of a family farm corporation
This is in response to your correspondence of August 7, 2012 requesting our views on the respective definitions of "share of the capital stock of a family farm corporation" in subsections 70(10) and 110.6(1) of the Income Tax Act (the "Act").
In particular, you wanted to know if the views expressed in technical interpretation 2000-0011595 are still valid and how they might apply to a situation where a particular property, such as land, was rented and used in the business of farming in Canada by a farmer before it was actually acquired by the farmer's corporation.
Our Comments
Written confirmations of the tax implications inherent in particular transactions are provided by this Directorate where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, "Advance Income Tax Ruling", dated May 17, 2002. This Information Circular and other CRA publications can be accessed on the internet at http://www.cra-arc.gc.ca/formspubs/menu-e.html. Where a particular transaction has already been completed, a review of the relevant facts and circumstances surrounding the situation would be required. Such review would normally be conducted by the applicable Tax Services Office during the course of an income tax audit which, if undertaken, would be carried out after the particular taxpayer has prepared and filed its income tax return for the year. Notwithstanding the foregoing, we are prepared to provide the following general comments.
Subsection 70(10) "Share of the Capital Stock of a Family Farm Corporation"
The definition of a share of the capital stock of a family farm corporation in subsection 70(10) of the Act, provides, inter alia, that a share of a corporation will be a share of the capital stock of a family farm corporation of a person at a particular time if that share is owned by the person at that time and if, at that particular time, 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 a person or persons described in subparagraphs (a)(i) to (a)(iv) of the definition (i.e., "eligible persons"), principally in the course of carrying on the business of farming 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.
In technical interpretation 2000-0011595, we stated the following in respect of this definition":In our view, property that is owned by a corporation and that was used (by) one of the eligible persons principally in the course of carrying on the business of farming in Canada (in which the person or a spouse, child or parent of the person was actively engaged) will satisfy the requirements of paragraph (a), even if the corporation did not own the property while the property was so used."
We can confirm that the above statement continues to reflect our current position on this matter.
As such, the CRA would take into account the use of a particular property by a person who was an eligible person in respect of that family farm corporation during a period of time where such property was owned or rented by such eligible person(s) before it was acquired by the family farm corporation.
Subsection 110.6(1) "Share of the Capital Stock of a Family Farm Corporation"
In order to qualify as a "share of the capital stock of a family farm corporation" under the definition in subsection 110.6(1) of the Act, at any time (herein referred to as the "determination time"), the requirements of both paragraphs (a) and (b) of the definition must be met. Generally, the requirement in paragraph 110.6(1)(a) of this definition would be met if, throughout any uninterrupted 24-month period ending before the determination time, more than 50% of the fair market value of the property owned by the corporation was attributable to property used by the corporation principally in the course of carrying on the business of farming in Canada in which an individual described in subparagraph (a)(i) of the definition was actively engaged on a regular and continuous basis. Such an individual could be the spouse, child or parent of the individual (specified person) and the 24-month period could be any 24 continuous months while the corporation owned the property.
While the continuous 24 month period referred to in paragraph 110.6(1)(a) of the above definition does not have to be immediately prior to the determination time, the test in subparagraph (i) has to be met during a continuous 24 month period during which the property is actually owned by the particular corporation.
The requirement in paragraph 110.6(1)(b) of the definition of "share of the capital stock of a family farm corporation" will generally be met if, at the determination time, all or substantially all (90% or more) of the fair market value of the property owned by a corporation was attributable to property described in subparagraph (a)(iv) which refers to property described in subparagraphs (a)(i), (ii) or (iii) of the definition.
In technical interpretation 2000-0011595 we stated the following in respect of this definition":In our view, property that is owned by the corporation and that was used by the corporation or other eligible person principally in the course of carrying on the business of farming in Canada will satisfy the requirements of subparagraph (b)(i) [sic], even if the corporation did not own the property while the property was so used."
We can confirm that the above statement continues to reflect our current position on this matter.
As such, while the family farm corporation must otherwise meet the requirements of subparagraph 110.6(1)(a) of the definition of "share of the capital stock of a family farm corporation" for a continuous 24-month period during which that corporation actually owned the property for that entire 24-month period, for the purposes of subparagraph 110.6(1)(b) of the definition, the CRA would take into account the use of a particular property by a person who was an eligible person during a period of time where such property was otherwise owned or rented by such eligible person(s) before it was acquired by the family farm corporation.
We trust our comments will be of assistance.
Yours truly,
Michael Cooke, C.P.A., C.A.
Manager
Capital Transaction Section
Business and Employment 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
Email this Content