14 December 1990 Income Tax Severed Letter 9033 - [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.

Revenue Canada Taxation Head Office

Glen Thornley (613) 957-2101

December 14, 1990

Dear Sirs:

Re: Ontario Farm Start Program ------------------------------

This is in reply to your letter of November 12, 1990 requesting an opinion on the treatment of grants under the above captioned program. In particular you wish to know whether such grants will be considered as income or capital in nature.

You comment that in your view as the grants are designed to provide assistance to the start-up of a farming business, they should be of a capital nature. You note, however, that the grants do not specify assistance to any particular capital asset acquired by the individual.

Our Comments ------------

It is the purpose for which the assistance is given by a government body and not the use that governs the tax status of such grants. 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. 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 parent's 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 exemption to the rule that the grants are to assist cash flow during the difficult first years of farming. The exemption was 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 where the applicant clearly applies for the grant to acquire shares or a partnership interest in the family farm corporation or business, the proceeds from the grant may be applied to reduce the adjusted cost base of the shares or partnership pursuant to paragraph 53(2)(k) of the Act. If the grant is not clearly given for the acquisition of shares or partnership interest, it will be taxable under paragraph 12(1)(x) of the Act.

We trust this is the information you require.

Yours truly.

for Director Business and General Division Ruling Directorate Legislative and Intergovernmental Affairs Branch