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: Follow-up letter concerning technical interpretation letter to 2013-050331.
Position: None taken - some general comments regarding situation where a taxpayer carries on a business that involves farming activities (growing grapes) and non-farming activities (i.e. processing of farm product producing wine for sale).
Reasons: See general comments
Tim Fitzgerald, CGA
November 19, 2013
Re: Technical Interpretation #2013-050331 [the "Technical Interpretation"]
This is further to our telephone discussion of October 31, 2013 [Fitzgerald/XXXXXXXXXX] concerning the above-noted Technical Interpretation. In that Technical Interpretation, a taxpayer was carrying on a wine-making business that involved both farming activities (i.e., growing grapes) and non-farming activities (i.e., producing wine for sale). The taxpayer owned steel tanks and oak barrels that were used exclusively in its non-farming activities.
As mentioned in the Technical Interpretation, for purposes of, inter alia, class 29 of Schedule II of the Regulations, the definition of "manufacturing or processing" in subsection 1104(9) of the Regulations specifically excludes, among other activities, farming. As you know, the word "farming" is given a wide definition by subsection 248(1) of the Income Tax Act (the "Act") and includes, inter alia, tillage of the soil and fruit growing. However, a farmer or a farming corporation may carry on activities that, if carried on by another person, would be considered to be processing of farm products rather than farming. Some examples are: aging of cheese, plucking of chickens, cleaning, polishing and treating of beans, or cleaning sorting, grading and spraying of eggs.
The courts and the Canada Revenue Agency ("CRA") have generally accepted that farming does not include the manufacturing or processing of agricultural products unless such activities are incidental to the farming activity. As we discussed, generally where a farmer or farming corporation separates the activities of farming and the processing of farm products, the CRA will essentially consider the processing activity to be a distinct business from that of farming provided that there is a clear delineation of the income from each business activity, and that the income from the processing business is properly calculated and is not eligible for any of the special sections in the Act dealing with income from a farming business (such as the cash method of computing income in section 28 of the Act). However, it ultimately remains a question of fact whether a particular taxpayer's processing activities (such as wine making) are considered to be incidental to or form part of a single business that is farming (see for example, Tinhorn Creek Vineyards Ltd. v. The Queen, 2005 DTC 1589 [TCC]), or two businesses are being carried on by the taxpayer, a farming business and a wine-making business (see Alphonse E. Leblanc v. MNR, 93 DTC 1664 [TCC]).
While we trust our additional comments relating to the Technical Interpretation are helpful we would like to remind you that we are not confirming the income tax treatment of any particular situation but are offering our general comments to assist you in making such a determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, "Advance Income Tax Rulings".
Michael Cooke C.P.A., C.A.,
Business Income and Capital Transaction Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Directorate
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