22 January 1992 External T.I. 9134425 F - Farming-Hydoponics-Bean Sprouts

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.

     913442

          Glen Thornley

          (613) 957-2101

24(1)

Attention:  19(1)

January 22. 1992

Dear Sirs:

Re:  Meaning of "Farming"

This is in reply to your letter of December 6, 1991 requesting a technical interpretation of the meaning of "farming" as it is referred to in section 28 of the Income Tax Act (the "Act"), and as defined under subsection 248(1) of the Act.  In particular you ask if "farming" would include the activity of growing bean sprouts from beans which are placed in temperature controlled stainless steel tanks and irrigated with water on a regular basis until the sprouts are grown into edible produce which is harvested and sold.

Our Comments

1.     The Department's general position with respect to the meaning of a farming is outlined in paragraph 7 of Interpretation Bulletin IT-433, dated June 25, 1979 and paragraph 9 of Interpretation Bulletin IT-145R, dated June 19, 1981 (see also Special Release to IT-145R, dated February 28, 1986). 

However, it is entirely a question of fact whether a particular activity can be considered to be "farming" for purposes of the definition in subsection 248(1) of the Act.  For instance, as outlined in paragraph 7 of IT-433, in certain situations the operation of greenhouses or the raising of fish may constitute farming.  This is consistent with the comments of Sawchuk, TCJ, in De Cloet Limited vs M.N.R. (89 DTC 207):

"...modern farming, whether it is the growing of grain or vegetables or tobacco can no longer be described as simply "tilling the soil".  Does hydroponic production of vegetables fall outside the definition of "farming" because plants are not grown in soil and there is no "tilling of the soil"?  I would doubt this is the case.  Agricultural farming involves the whole aspect of commercial production of any crop or plant that has economic value, and in my view, encompasses all of the activities of a farmer."

2.     The definition of "farming" in subsection 248(1) of the Act does not contain an all-inclusive list of agricultural activities that will be accepted as farming for tax purposes.  On this point, The Honourable Mr. Justice Addy in Pollon et al vs. The Queen, 84 DTC 6139 says at page 6142:

"It seems clear on reading the definition of farming in  subsection 248(1) quoted at the beginning of these reasons that, since "farming" is defined as including the raising of poultry, together with other various agricultural activities, the enumeration of the matters is not intended to constitute an exhaustive definition and one must look to the common, ordinary and generally accepted meaning of the word as well as to the specific activities detailed in the statute."

On page 6144 he expands on the general acceptability of classifying modern growing techniques as farming activities:

"More and more today because of numerous and rapidly developing scientific and technological methods and procedures in the field of food production, men and manually controlled implements are being replaced by machinery and scientifically developed technical processes.  Where the development of the basic food product still involves the growing process and natural biological changes as opposed to artificially manufactured foods or mere processing, I do not feel that, generally speaking, the activity would be considered by the general public anything other than agricultural in nature and would, therefore, generally be considered as a farming operation"

In this respect most dictionaries separate as two distinct agricultural activities, tillage of the soil, and producing crops. On this basis, the definitions appear to contemplate that crop production can be achieved without tillage of the soil.  We have thus concluded that hydroponics, or the process of growing crops without soil, in beds of sand, gravel, or similar supporting material flooded with nutrient solutions may also meet the definition of farming.  Based on comments in the Pollon case and the De Cloet Limited case, we are of the general view that both the cultivation of crops in water, and hydroponics, may meet the definition of "farming" contained in subsection 248(1) of the Act. Growing bean sprouts in the manner described above appears to meet these criteria.

These comments represent our general views with respect to the subject matter of your letter.  The facts of a particular situation may yield a different result.  The foregoing comments are not rulings and, in accordance with the guidelines set out in paragraph 21 of IC 70-6R2 are not binding on the Department.

We trust our comments will be of assistance to you.

Yours truly,

E. Wheelerfor DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental  Affairs Branch