21 October 1991 Ministerial Correspondence 912674 F - Farm Joint Venture

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.

Dear Sirs:

Re.  Farm Joint Venture

This is in reply to your letter of September 9, 1991, requesting our views on the reporting of income in the hypothetical situation given.  The facts as given are as follows;

1.     

2.     

24(1)

3.     

4.     

24(1)

Although you have asked for a technical interpretation, it would appear that a proposed transaction by a particular taxpayer is involved.  Thus this matter would appear to be more appropriately the subject of an Advance Income Tax Ruling.  We are, however, prepared to provide some general comments.

Our Comments

Whether or not a partnership or a joint venture exists is a question of fact.  The term joint venture is a term loosely used by the business community and may or may not reflect the existence of a partnership.  If the terms of agreement contain all the essential ingredients of a partnership at law (e.g. joint ownership, joint and several liability, sharing of business profits and losses, continuity of operation), the "joint venture" will be regarded as a partnership by the Department.  The partnership law of the relevant province is persuasive in this regard.   Where two or more persons agree that each provides his own property to perform a specific tasks and receives a specific division from such tasks it may be considered a joint venture. As noted, the business relationship between father and son is a question of fact and the facts could show such a relationship to be neither a partnership nor a joint venture.  For example, the son could be acting as the father's agent for the sale of the father's cattle.

In the case at hand

24(1)

In the event either the father or son has a loss from the farming operation, the purchased inventory on hand at the end of the fiscal period would be subject to the mandatory inventory adjustment pursuant to paragraph 28(1)(c) of the Act.  Whether this is done at the partnership level or by either or both of the taxpayers individually will depend on all the facts of the case.

The above comments are only expressions of opinion on the application of the Income Tax Act to the hypothetical example given and as such should not be construed as advance income tax rulings, nor are they binding on the Department.

We trust our comments will be of assistance

Yours truly,

for DirectorBusiness & General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch