12 June 2014 External T.I. 2014-0527651E5 - Whether keeping a zoo is a farming activity

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.) Whether zoo keeping is a farming activity. 2.) Whether animals are capital assets or inventory. 3.) If capital, which CCA class.

Position: 1.) Zoo keeping is not farming. 2.) Non-depreciable capital assets. 3.) None.

Reasons: 1.) Zoo animals are not "livestock", hence exhibiting them is not farming under the definition in Act. 2.) The Act and our previous position. 3.) n/a.

XXXXXXXXXX
2014-052765
Whitney Dunn

June 12, 2014

Dear XXXXXXXXXX:

RE: The definition of "farming" under the Income Tax Act

We are writing in response to your email of April 10, 2014 where you requested our views on whether operating a zoo would be farming under the Income Tax Act (the "Act"). You also asked which capital cost allowance class, if any, the animals would fall within.

Our comments:

This technical interpretation provides general comments about the provisions of 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.

Farming is defined in subsection 248(1) of the Act to include: "tillage of the soil, livestock raising or exhibiting, maintaining of horses for racing, raising of poultry, fur farming, dairy farming, fruit growing and the keeping of bees …". This definition is not exhaustive. As the Honourable Mr. Justice Addy stated in Pollon et al v. The Queen:

It seems clear on reading the definition of farming in sec. 248(1) … that, since "farming" is defined as including the raising of poultry, together with other various agricultural activities, the enumeration of these matters is not intended to constitute an exhaustive definition and one must look to the common, ordinary and generally accepted meaning of the word as well as to the specific activities detailed in the statute. (footnote 1)

The business of operating a zoo is not, in our view, part of the common, ordinary or generally accepted meaning of farming. To qualify as farming under the Act, it must therefore fall within one of the listed activities in that definition, "livestock raising or exhibiting" being the only potentially relevant one.

"[L]ivestock" is also not a defined term in Act and must be interpreted according to its ordinary meaning and also in a manner consistent with "animaux de ferme", the equivalent term in the equally authoritative French version of the Act. For income tax purposes, we indicated in paragraph 2 of Interpretation Bulletin IT-427R, "Livestock of Farmers", that "livestock" includes "any and all animals, (i.e. living organisms which are not plants or bacteria) if they are kept, maintained and bred under controlled conditions for profit."

Livestock is also specifically mentioned in the legislation for the goods and service tax, the Excise Tax Act. Schedule VI, Part IV, Section 1 zero-rates: "a supply of farm livestock (other than rabbits), poultry or bees that are ordinarily raised or kept to produce, or to be used as, food for human consumption or to produce wool." Chapter 4.4, "Agriculture and Fishing", of the GST/HST New Memoranda Series states the following animals qualify under that section:

1. cattle
2. sheep
3. goats
4. pigs
5. llamas and alpacas
6. buffalo/bison
7. geese
8. turkeys
9. ducks
10. chickens
11. elk and deer
12. honey bees
13. ostriches, emus and rheas
14. pheasants, partridges, quails, wild turkeys, squabs, and colins (footnote 2)

While not segregated, items 1-6, 11, and 13 appear to qualify as livestock (and the rest as either poultry (7-10, 14), or bees (12)).

The GST/HST list of livestock accords well both with judicial interpretations and common definitions of the word. For instance, the Tax Court stated that livestock "are domestic animals such as cattle and pigs, bred or kept on a farm for use and commercial profit." (footnote 3) Common definitions include: "[c]attle, horses, poultry, and similar animals kept for domestic use but not as pets, esp. on a farm or ranch"; (footnote 4) and "[d]omesticated animals raised in an agricultural setting to produce commodities such as food, fiber and labor." (footnote 5)

While we recognize the Excise Tax Act places greater restrictions on when farm livestock will qualify as a zero-rated supply than the Act does for livestock to be considered part of a farming activity, we see no practical difference between which animals would be considered "livestock" as opposed to "farm livestock"; consequently, we now view the interpretation in paragraph 2 of IT-427R as too broad.

Therefore, where a taxpayer raises or exhibits wild or exotic animals such as lions, tigers, apes, or elephants, these types of animals would not, in our view, be considered as livestock nor would such activities be considered as farming for the purposes of the Act.

For the tax treatment of the animals themselves, we agree they are capital assets and cannot be expensed. In addition, no capital cost allowance may be deducted under paragraph 20(1)(a) of the Act as animals are specifically excluded from Class 8 of Schedule II of the Regulations to the Act and not included in any other class.

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

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 84 DTC 6139 at page 6142.
2 GST Memoranda (New Series), Chapter 4.4, paragraph 5.
3 Sniderman v. MNR, 89 DTC 232; [1989] 2 CTC 2027 (TCC).
4 http://www.collinsdictionary.com/dictionary/english/livestock.
5 http://en.wikipedia.org/wiki/Livestock.