12 September 1989 Ministerial Correspondence 58414 F - Capital Gains Exemption on Shares of the Capital Stock of a Family Farm Corporation

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.

September 12, 1989

19(1)

We are writing in reply to your letter of July 12, 1989, (copy attached) wherein you requested our interpretation of "share of the capital stack of a family farm corporation" as defined in subsection 110.6(1) of the Income Tax Act as it relates to the two scenarios set out in your letter.

Our Comments

In order for a share of a corporation to qualify as a "share of the capital stock of a family farm corporation" it must fulfil all of the requirements of that definition in subsection 110.6(1).  There is no requirement that the share fulfil the requirements of a "qualified small business corporation share" as defined in subsection 110.6(1).  Similarly, there is no requirement that the family farm corporation be a "small business corporation" as defined in subsection 248(1).

In other words neither of the two scenarios set out in your letter would necessarily apply to the definition of a "share of the capital stock of a family farm corporation" in and by themselves.

In order that the shares of Holdco, held by an individual may qualify as shares of the capital stack of a family farm corporation, all or substantially all of the assets of Holdco must be the shares of Opco and all or substantially all of the property of Opco must be property described in paragraph (a) of the definition of "share of the capital stock of a family farm corporation" in subsection 110.6(1).

From the limited information set out in your letter we are unable to determine if Opco's property was property described in paragraph (a) of the definition and by extension we cannot offer an opinion as to whether or not the shares held by the individual, in your scenarios, would be shares of the capital of a family farm corporation.  However, we note that paragraph (a) of the definition requires, among other thing, that the property of the corporation (Opco, in this case) was "all or substantially all" used in the farming business throughout the 24 month period ending at the time of the sale.

Should you have a factual case involving a proposed transaction, you may wish to submit all relevant facts for a binding advance income tax ruling.  Should the situation involve a factual case and a completed transaction you may wish to submit details to the appropriate District Taxation Office for their views on the matter.

We hope these comments are of assistance.

Yours truly,

for DirectorSmall Business and General DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch