28 May 1990 Administrative Letter 59636 F - Definition of "Qualified Farm Property"

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.

May 28, 1990

19(1)

We are writing in reply to your letter of February 7, 1990, wherein you requested our views regarding the definition of "qualified farm property" (QFP) as defined in subsection 110.6(1) of the Income Tax Act.

Our Comments

Generally, in order for real property, acquired after June 17, 1987, to qualify as QFP it must meet the following requirements set out in subparagraph 110.(6)(1)(a)(vii):

(a)     The property must have been owned by the individual, his spouse, children, parents, family farm partnership, or a personal trust from which the individual acquired the property throughout the 24 months immediately preceding its disposition.

(b)     In at least two years while the property was so owned, the gross revenue of the individual who used the property in the course of carrying on the business of farming, and who was actively engaged in that business on a regular and continuous basis, from the farming business in which he used the property must have exceeded that person's income from all other sources for the year.  If the property was used by a family farm corporation or partnership, that corporation or partnership must have used the property in the course of carrying on the business of farming in Canada throughout a period of at least 24 months, during which time an individual referred to in any of  subparagraphs (i) to (iii) must have been actively engaged on a regular and continuous basis in the farming business in which the property was used.

With respect to the specific questions posed in your letter our comments are as follows.

1.     With respect to the scenario set out in your letter, it is our opinion that the 24 month period of ownership may be aggregated as suggested, such that the ownership of the property by both the individual and the spousal trust would be included in the 24 month holding period for purposes of subparagraph 110.6(1)(a)(vii) of the QFP definition.

2.     On the assumption that the deceased taxpayer, while he owned the property met all of the other requirements of this subparagraph, we agree that the gross revenue requirement could be met by the deceased taxpayer rather than the trust, for purposes of the subsequent disposition.

3.     The definition of "interest in a family farm partnership" in subsection 110.6(1) provides that such an interest owned by an individual, other than a trust that is not a personal trust, will qualify provided that, at the time of the disposition of the interest, all or substantially all of the property of the partnership was property that was used, throughout a period of at least 24 months before that time, by the partnership or certain eligible persons in the business of farming carried on in Canada in which any such person who is an individual was actively engaged on a regular and continuous basis.  An eligible person includes the individual, where the individual is a personal trust as defined in subsection 248(1), a beneficiary of the trust, or a spouse, parent or child of the individual or the beneficiary or a family farm corporation of any such individual.  This definition will ensure that interests in partnerships that have ceased to carry on a business of farming in Canada because of the retirement of its partners will be included as qualified farm property of an individual provided that all or substantially all of the property of the partnership meets the 24 month use test.

     With respect to your two questions on this issue our views are as follows:

a)     On the assumption that the three children and their parents each own a partnership interest as defined above, and all of the requirements of this definition and the definition of QFP are met, it is our view that the subsequent disposition of these partnership interests could be eligible for the enhanced capital gains deduction provided for in subsection 110.6(2).

b)     On the assumption that "cropping the land in the spring and fall" does not involve rental of the property on a "share of the crop basis", and assuming that this phrase means that the land is tilled and planted in the spring and the crop is harvested in the fall by the farm partnership, it is our view that the absence of farming activity in the summer would not, in and by itself, indicate that farming was not carried on "on a regular and continuous basis".

We would caution that the above comments, which are based on your hypothetical situations, are an expression of opinion only and as such are not binding upon the Department in an actual fact situation.

Yours truly,

for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch