14 December 1990 Internal T.I. 903019 F - Farm Proprietorship

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.

December 14, 1990

Dear Sirs:

Re:  Farm Proprietorship

This is in reply to your letter of October 17, 1990 concerning your request for advance income tax ruling. As explained to you in our telephone conversation of November 14, 1990, advance income tax rulings are only given in respect of proposed transactions subject to the guidelines in Information Circular IC 70-6R2 ( a copy is enclosed for your information). We can however provide you with some general comments regarding whether an individual farmer could have his newly incorporated corporation report certain grain revenue in the early pat of 1991 rather than himself even though he grew the grain in question and claimed the expenses relating to its production.

Our Comments

Generally, in the circumstance of your situation where a sales agreement is drawn up between an individual and his newly incorporated company clearly stating that the individual will be acting as agent for his company in the sale of grain to the Wheat Board during a particular period any resulting income will be considered that of the corporation and not of the individual.

Additionally, even though an individual computed his income from farming on the "cash basis" and consequently, had deducted the cost of growing grain under paragraph 28(1)(c) of the Act, the grain will be considered inventory for the purposes of Section 85 of the Act. Thus an individual and his corporation may jointly elect to have the rules in Section 85 apply to the proposed transfer. In this regard we would refer you to paragraph 14 of the enclosed Interpretation Bulletin IT-433.

Where, however, a newly formed corporation reports proceeds from the sale of grain inventory transferred to it under section 85 of the Act there will be no offsetting deduction for cost of such inventory since the costs related thereto have already been allowed to the individual prior to the transfer.

The forgoing represents our general views with respect to the subject matter of your letter, however, the facts of a particular situation may result in a different conclusion. As indicated, these opinions are not rulings and in accordance with the guidelines set forth in Information Circular 70-6R2 dated September 28, 1990 they are not binding on the Department.

For your assistance we are enclosing the following material produced by the Department:

     Information Circular IC 70-6R2 Advance Income Tax RulingsInformation Circular IC 76-19R Transfer of Property to a Corporation under Section 85 Interpretation Bulletin IT-33 Farming Use Of Cash MethodInterpretation Bulletin IT-291R Transfer Of Property to a Corporation under Subsection 85(1).

We trust our comments are of assistance.

Yours truly,

for DirectorBusiness and General DivisionRulings DirectorateLegislative and IntergovernmentalAffairs Branch