30 March 1988 Income Tax Severed Letter 7-2606 - [Tobacco Growers Exit Compensation Program]

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.

REVENU CANADA TAXATION MEMORADUM REVENU CANADA IMPÔT

DATE:

TO/À LONDON DISTRICT OFFICE

FROM/DE  7-2606
         C. Higgins
         (613) 957-2103

ATTENTION C. Norman
          Audit Review

RE: Tobacco Growers Exit Compensation Program -------------------------

MAR 30 1988

This is in reply to your memorandum of February 26, 1988 requesting our comments on the tax treatment of payments received in 1987 under a government program called the Exit Compensation Program (ECP).

This program was part of the three year Tobacco Assistance Program (TAP) announced on April 23, 1987 by federal Agriculture Minister John Wise. ECP was designed to assist Ontario tobacco growers who had completely or partially left the tobacco industry after February 26, 1986 and before the announcement of the TAP program in April 1987.

Eligible applicants for the ECP must have been allocated basic production quota and have used it to produce tobacco in Ontario in 1984, 1985 or 1986, or have been a cash renter in those years. Also, they must have sold all or part of their basic production quota during the period February 26, 1986 to April 23, 1987 and at the same time left the industry. Approved applicants must agree in writing not to purchase or rent a basic production quota for a period of five years. Applications were to be received until December 31, 1987 or until the program funds were committed, which ever came first.

Payments under the program are based on $500 per acre of tobacco removed from production to a maximum of $15,000 per individual, including any supplementary acreage payment received from the TAP.

Our Comments

Payments under the ECP are not in respect of consideration for transferring tobacco quota to the tobacco assistance committee. Instead, such payments to qualified individuals are based upon the amount of land removed from tobacco production. It is our position that the $500 per acre received by the tobacco growers from the ECP was made to encourage a taxpayer to discontinue a certain use of the land and the amount is related to the land employed by the taxpayers in that activity. As a result, it is our view that such amounts reduce the adjusted cost base of the land pursuant to paragraph 53(2)(k) of the Income Tax Act (the "Act"). This is consistent with the Department's guidelines as set out in IT-273R . We note for your information that this position differs from that with respect to amounts received by a tobacco grower in connection with the disposition of a tobacco quota or licence either on the open market or to a government body. In this latter case, one-half of amounts received would be applied to reduce the taxpayer's "cumulative eligible capital" account for purposes of paragraph 14(5)(a) of the Act.

We trust these comments will be of assistance.

ORIGINAL SIGNED BY Wm. R. McColm

Chief Small Business and General Division Services, Public Utilities and Exempt Corporations Section Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch