27 March 1992 External T.I. 9204875 F - Block Averaging Where There Is No Gross Income

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.

24(1)          920487

C. Tremblay                                                (613)952-1361

Attention:  19(1)

March 27, 1992

Dear Sirs:

Re:  Subsection 119(1) of the Income Tax Act (the "Act")

This is in reply to your letter of February 13, 1992, requesting our opinion as to availability of the five year block averaging pursuant to subsection 119(1) of the Act where the taxpayer has had no gross income from farming in one or more of the years to be averaged.

It is your view that, in accordance with the Morrison case              (91 DTC 622, TCC) such a taxpayer should be allowed to elect to average income during any 5 year period for which the taxpayer's chief source of income for the period taken as a whole is farming.

Since your letter appears to refer to a factual situation involving a specific taxpayer, your questions should be directed to your District Taxation Office which has the responsibility of determining the tax consequences of completed transactions and their implications to the specific taxpayers.  However, we are prepared to offer the following general comments.

Our Comments

Generally, a five year block averaging election is available only to an individual whose chief source of income during the year of averaging and the immediately four preceding years for which returns have been filed is either farming or fishing.  Further, if a taxpayer makes such an election, averaging will only be available provided that the five year period being averaged commenced before 1988. 

The tests used to determine the chief source of income are enunciated in Moldowan v The Queen (77 DTC 5213, SCC) and are relevant.  In William Morrison v MNR (91 DTC 622, TCC), William Morrison was farming in all the years involved.  The Court found that, throughout the period, Mr. Morrison's gross and net income, his capital investment and his cash flow from farming all demonstrated a substantial commitment to farming. In our view, to be eligible for the block averaging provisions found in section 119 of the Act, a taxpayer must have farming or fishing as his or her chief source of income in each year of the five year period.  In this regard see Israel v. MNR (79 DTC 5418, FCTD).

We trust our comments will be of assistance to you

Yours truly,

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