3 December 1990 Internal T.I. 902949 F - Grants under Ontario Farm Start 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.

19(1)

December 3, 1990

Dear Sirs:

Re:  Ontario Farm Start Program

This is in reply to your letter of October 18, 1990 asking for clarification of our June 27, 1990 letter to the 24(1). In particular you ask if the Farm Start grant was used to reduce a promissory note given as consideration in acquiring shares of a family farm or family farm partnership interest, would it be treated as income or as an adjustment to the adjusted cost base of property?

Our Comments

As indicated in our June 27, 1990 letter to the 24(1) the purpose of the yearly grants under the Ontario Farm Start Program is to assist new farmers with their cash flow during the difficult first years of farming. It is the purpose for which the assistance is given by the government body and not the use that governs the tax status of such grants. Thus the bulk of the grants will be taxable under paragraph 12(1)(x) of the Income Tax Act.

Only where the recipient has clearly applied for the grant to, acquire shares or a partnership interest in his or her parents' farm is the advance not considered taxable under paragraph 12(1)(x) of the Act. This is so because the Ontario Farm Start Order in Council provides, in paragraph 5(4b), an exception to the rule that the grants are to assist cash flow during the difficult first years of farming. The exception reads as follows:

     "(4b) Subsection (4) does not apply to an applicant who is applying for a grant to assist in acquiring a share in his or her parent's farm".

Thus the answer to your question depends on whether the applicant clearly applied for the grant to assist in acquiring the family farm. If he or she did not, then the grants will be taxable under paragraph 12(1)(x) of the Act even if they were used to reduce the promissory note in the circumstances of your example.

We trust this is the information you require.

Yours truly,

for DirectorBusiness and General DivisionRulings DirectorateLegislative and IntergovernmentalAffairs Branch