18 January 1991 Internal T.I. 9035207 F - 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.

7-903520

Subject: Ontario Farm Start Program

This is in reply to your memorandum of December 11, 1990 requesting a statement or explanation as to how an exception to the determination of "Eligible Persons" under paragraph 5(4b) to paragraph 5(4) of the Ontario Farm Start Order in Council entitles certain individuals to receive their grants as capital rather than income.

You state that you find the aforementioned position confusing in light of Mr. Bailey's statement in his June 27, 1990 letter to the

14(a)

However you fail to quote his next statement which is an exception to the statement quoted. It reads,

14(a)

Clearly given suggests a purpose test to us.  Thus our position in this matter is as follows.

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 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." (emphasis added)

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.

As indicated in our earlier memorandum of November 19, 1990 regarding the Farm  Start Program, our position which is based on the statutory language of the Ontario Farm Start Order in Council (23) (23) as well as by 19(1) 19(1) All of the above points were set out in our previous memorandum in some detail and represent the Rulings Directorates considered opinion in this matter.

21(1)(b)

E. WheelerChiefServices, Public Utilities & Exempt and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch