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: Is growing marijuana that will be sold to a lab (to be made into medicinal marijuana) a farming or a manufacturing or processing activity?
Position: Question of fact, but likely farming.
Reasons: The combined activities of growing, harvesting, and drying marijuana appear to be "farming".
XXXXXXXXXX
2013-051071
Whitney Dunn
November 22, 2013
Dear XXXXXXXXXX:
Re: Whether marijuana growing is farming or manufacturing or processing
We are writing in response to your email of November 4, 2013, wherein you asked whether a taxpayer who carries on a business of legally growing and drying marijuana is engaged in a farming activity as opposed to a manufacturing or processing activity. We understand that all the marijuana is sold to various laboratories that will process it so that it can ultimately be legally sold to end-users for medicinal purposes.
Our comments:
This technical interpretation provides general comments about the provisions of the Income Tax Act (the "Act"). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that 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.
Whether or not a taxpayer's business operations are considered to be "farming" for the purposes of the Act is a question of fact.
The word "farming" is given a wide definition by subsection 248(1) of the Act. It includes tillage of the soil, the raising or exhibiting of livestock, the maintenance of horses for racing, the raising of poultry, the keeping of bees, fur farming, dairy farming and fruit growing. As indicated in IT-433R, "Farming or Fishing - Use of Cash Method", this definition is not exclusive and would also include tree farming, the operation of a wild game reserve, a mechanical egg hatching operation, and the cultivation of crops in water and hydroponics. As noted by the Tax Court in De Cloet Ltd. v. M.N.R., 89 DTC 207, "[a]gricultural farming involves the whole aspect of commercial production of any crop or plant which has economic value".
If an activity is farming, it is specifically excluded from being "manufacturing or processing" according to the definitions of that term in subsection 125.1(3) of the Act and subsection 1104(9) of the Regulations to the Act. However, farming generally does not include the processing of harvested agricultural products unless the processing activities are incidental to the main farming activity of growing the products and are necessary to turn the harvested agricultural products into saleable products. The expression "incidental" implies a subordinate relationship or "having a minor role in relation to". Factors to be considered include the quantum of value added by the processing activity, the capital and labour invested in each activity, and the integration of the various activities into one farming business. For example, in De Cloet Ltd. and Tinhorn Creek Vineyards Ltd. v. The Queen, 2005 DTC 1589 (TCC), the Court considered the various factors and concluded in both those situations that activities which on their own may have been processing activities drying tobacco and winemaking, respectively were an integral part of the taxpayer's farming business.
While a question of fact, based on the limited information you have provided us it appears that the taxpayer's business activities of growing and drying marijuana would be considered as farming activities and not processing activities.
We trust our comments will be of assistance.
Michael Cooke, C.P.A., C.A.
Manager
Business Income and Capital Transaction Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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