21 November 1989 Ministerial Correspondence 58764 F - Use of Cash Method by Farming Business

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.

November 21, 1989

19(1)

We are writing in reply to your letter of September 21, 1989, wherein you request our opinion as to whether or not a particular business operation would be entitled to report income on the cash basis, under subsection 28(1) of the Income Tax Act.

As we understand it 24(1)

Our Comments

Interpretation bulletin IT-433, entitled "Farming - Use of Cash Method", makes the following comments (in paragraph 6 thereof) regarding whether or not a taxpayer is carrying on the business of farming or some other business.

     "When a taxpayer is carrying on a farming operation together with some other business operation (e.g., the processing of farm products), it is a question of fact dependent upon the circumstances of the case as to whether or not the farming operation can be considered a separate business for which the farmer can elect to report the income using the "cash" method.  Normally, z taxpayer will be considered to operate two separate business if the businesses are not so interlaced, interdependent and interconnected that it is virtually impossible to separate one operation form the other.  If it is established that two separate businesses are being carried on, the taxpayer may elect to report his income from the farming business using the "cash" method provided he maintains a separate set of books and records for the farming business."

In view of the above comments and since your enquiry involves an actual taxpayer and a factual situation, we would suggest that you submit all relevant facts and documentation to the appropriate District Taxation Office for their views as to whether or not your client is in the business of farming, is carrying on two separate businesses or simultaneous business operations and is eligible to elect to use the cash method of reporting income.

In addition to the above we wish to draw your attention to Interpretation Bulletin IT-206R entitled "Separate Businesses" and the comments under the reading "Simultaneous Business Operations".

We hope these comments are of assistance.

Yours truly,

for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch