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.
Subject: Inquiry from 24(1)
This is in reply to your memorandum of October 28, 1991 in which you requested our views on the application of section 80.3 of the Income Tax Act (the "Act") to the Various issues outlined below.
Issue #l
24(1)
Our Comments
As outlined in paragraph 2 of Interpretation Bulletin IT-427, dated March 5, 1979, "livestock includes any and all animals (ie living organisms which are not plants or bacteria) if they are kept by man and are maintained and bred under controlled conditions for profit." Accordingly, any amount received in respect of the forced destruction, under statutory authority, of an 24(1) maintained and bred under controlled conditions for profit that is Included in computing the income of a farmer for the year is eligible for the deduction provided in subsection 80.3(2) of the Act.
Issue #2
Does the definition of "breeding animals" in subsection 80.3(1) of the Act include 24(1)
Our Comments
The definition of "breeding animals" in subsection 80.3(1) of the Act is restricted to the animals listed in paragraphs 80.3(1)(a) and (b) of the Act. Neither 24(1) nor any member of the deer family of animals is included in this definition. A review of the Department of Finance Explanatory Notes accompanying the release of Bill C-28 in 1989, which proposed the existing legislation in section 80.3 of the Act indicates that the tax policy underlying the definition of "breeding animals" in subsection 80.3(1) of the Act was intentionally restrictive. This restrictive approach is similar to that taken in the definition of "basic herd" in subsection 29(3) of the Act.
Issue #3
Does the phrase "carries on a farming business in a region that is a prescribed drought region" in subsection 80.3(4) of the Act refer to the location of the farmer's residence and farm or the location of the breeding herd. More specifically:
(i) when a farmer resides and normally operates his farm in a region that becomes a prescribed drought region but the farmer moves his breeding herd outside this region due to the drought and the herd is subsequently sold outside the prescribed drought region because it is infeasible to return the herd to the region that was the prescribed drought region as the pastures require several years to recover from the drought.
(ii) when a farmer resides and operates a farm outside a prescribed drought region and also maintains a breeding herd in a prescribed drought region where the herd is cared for under a lease arrangement.
(iii) when a farmer resides and operates a farm in one area and during the summer months relocates his breeding herd to a community pasture if either the farmer's own pasture or the community pasture becomes a prescribed drought region.
Our Comments
It is our view that the income deduction provide in subsection 80.3(4) of the Act is available "where in a taxation year a taxpayer carries on a farming business in a region that is a prescribed drought region at any time in the year and the taxpayer's breeding herd at the end of the year in respect of the business does not exceed 85% of the taxpayer's breeding herd at the beginning of the year in respect of the business". Accordingly, the breeding herd must be part of a farming business that was carried on at any time during the taxation year in a region that is a prescribed drought region at any time in that year. It is a question of fact whether a taxpayer is carrying on a farming business at a particular location at a particular time. In determining whether a taxpayer is carrying on business at a particular location it will be necessary to examine all the characteristics of the particular business and determine which of these are carried out at the particular location. Also, it is a question of fact whether a taxpayer who has farming operations at more than one location is carrying on more than one farming business. Paragraphs 2 and 3 of Interpretation Bulletin IT-206R, dated October 29, 1979 outlines the Department's general position on the issue of simultaneous business operations. More specifically: (i) A farmer who, during the year, moves his breeding herd out of a drought region into a non-drought region will be eligible for a deduction, pursuant to subsection 80.3(4) of the Act provided that at some time during the year he carried on a farming business in a region that was a prescribed drought region at any time in the year and the breeding herd was part of that farming business.
(ii) A farmer who maintains a breeding herd in a region, whether or not he actually owns the land where the herd is located and whether or not he personally cares for the breeding herd, may be eligible for a deduction, pursuant to subsection 80.3(4) of the Act if the region is a prescribed drought region at any time in the year provided that the farmer could be considered to be carrying on a farming business in the region. Whether a taxpayer is carrying on a farming business is a question of fact. Paragraphs 4 and 5 of Interpretation Bulletin IT-322R, dated October 25, 1978, outline the Department's general position in determining whether a farming operation is a business.
(iii) As outlined above, to be eligible for a deduction pursuant to subsection 80.3(4) of the Act, the breeding herd must be part of a farming business that was carried on at any time during the taxation year in a region that is a prescribed drought region at any time in the year. As outlined in paragraph (ii) above whether a taxpayer owns the land where the breeding herd is located is not, in and by itself, determinative of whether the taxpayer is carrying on a farming business in that region
These comments represent our general views with respect to the subject matter of our memorandum. The facts of a particular situation may yield a different result. We hope these comments will be of assistance to you.
E. Wheeler for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
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