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.
This is in reply to your letter of June 8, 1989, concerning "qualified farm property" of an individual as defined in subsection 110.6(1) of the Income Tax Act (the “Act”).
You described the following hypothetical situation:
- 1. An individual used land which he owned in the business of farming for a period of time greater than five years during his period of ownership.
- 2. The individual retires from the business of farming and sells the farm land referred to in #1 above. As part of the consideration he receives a mortgage from the purchaser.
- 3. Subsequent to the sale the individual forecloses on the mortgage taken back on the original sale resulting in the reacquisition prior to June 18, 1987 of the beneficial ownership of the land. Section 79 of the Act applied respecting the reacquisition of the land.
- 4. The individual then holds the real estate for a further period of time during which it is leased to other unrelated parties.
- 5. The taxpayer then sells the property in a taxation year subsequent to 1987. As a result of that sale, a capital gain is realized since the proceeds of disposition exceed the adjusted cost base of the property to him as computed under Section 79.
It is your view that the land in the situation described above would constitute "qualified farm property" of the individual at the time of the second sale.
We agree with your views that the land in the hypothetical situation described above would at the time of the second disposition qualify as a "qualified farm property" of an individual as defined in subsection 110.6(1) of the Act. In our telephone conversation you requested our comments respecting a reacquisition of the land in a similar hypothetical situation occurring after June 17, 1987.
In our view the land at the time of the second sale would not qualify as a "qualified farm property" of an individual in that the conditions in clause 110.6(1)(a)(vii)(A) would not be met if the reacquisition date in your hypothetical situation had been after June 17, 1987.
We trust this will be of assistance to you.
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© Her Majesty the Queen in Right of Canada, 1989
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© Sa Majesté la Reine du Chef du Canada, 1989
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