10 November 2017 External T.I. 2017-0688831E5 - 110.6(1.1) and AgriInvest

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 the value of an “excess deposit” in a taxpayer’s AgriInvest Account considered a “net income stabilization account” under subsection 110.6(1.1) and therefore deemed nil for purposes of the capital gains deduction?

Position: No.

Reasons: See below.

XXXXXXXXXX							A. Flisfeder
								2017-068883
November 10, 2017

Dear XXXXXXXXXX:

Re: Value of Excess Deposits in NISA Account and Capital Gains Deduction

This is in response to your correspondence dated February 9, 2017, in which you asked whether the value of “excess deposits” in a taxpayer’s AgriInvest Account are considered a “net income stabilization account” (“NISA”) for purposes of subsection 110.6(1.1) of the Income Tax Act (the “Act”).

Our Comments

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). 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 a particular transaction 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 70-6R7, Advance Income Tax Rulings and Technical Interpretations.

A NISA is defined in subsection 248(1) of the Act as an account under the net income stabilization account program under the Farm Income Protection Act (“FIPA”) or a prescribed account. Subsection 110.6(1.1) deems the fair market value of a NISA to be nil for the purposes of determining whether a particular share meets the criteria set out in the definitions “qualified small business corporation share” and “share of the capital stock of a family farm or fishing corporation”. This ensures that the fair market value of the NISA will not influence the determination of whether a particular share meets the criteria set out in those definitions (essentially the applicable fair market value asset tests set out in those definitions).

In Document No. 2015-0583561E5, we previously confirmed that an AgriInvest Account is a NISA for purposes of subsection 110.6(1.1). As you correctly identified in your letter, the enabling legislation (FIPA) and the Agreement establishing the AgriInvest program establishes two funds for each participant: Fund 1, to which amounts deposited by participants are credited; and Fund 2 to which government contributions and any interest earned in the AgriInvest Account are credited. In our view, any amounts that are not credited to either Fund 1 or Fund 2 (which are considered to be “excess deposits”) do not form part of a NISA for the purposes of subsection 110.6(1.1). Therefore, the fair market value of such excess deposits would not be deemed nil.

We trust these comments will be of assistance to you.

Yours truly,

Michael Cooke, CPA, CA
Manager
Business Income and Capital Transactions Section
Business and Employment Division
Income Tax Rulings Directorate