14 December 1992 Income Tax Severed Letter 9227805 - Income vs. Capital Gain

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.

922780
                                                   J.D. Brooks
      24(1)                                        (613) 957-2103

Attention: 19(1)

December 14, 1992

Dear Sirs:

This is in reply to your letter dated June 22, 1992 (postmarked September 16, 1992) in which you requested our opinion on the tax consequences of certain transactions in a hypothetical situation. In the scenario you described, a woman purchased a farm several years ago and has relied on her son and daughter-in-law to perform the farm work. In 1992, the woman transfers an interest in the farm to the son, and the son immediately transfers that interest to a family farm corporation. You queried whether the son would be able to qualify for the enhanced capital gains exemption which is available for qualified farm property.

Our Comments

The situation you outlined is apparently a factual situation and the described transfers are either recently completed transactions or are transactions contemplated for the near future.

The Department does not provide binding opinions on proposed transactions other than by way of advance income tax rulings. If you wish an advance ruling, we refer you to Information Circular 70-6R2. If you have questions regarding completed transactions, you should contact your local District Taxation Office. Nevertheless, we provide the following general comments.

Where a person ("vendor") has acquired property from another person (the "original owner") on a tax-deferred basis with the intention of shortly thereafter disposing of the property on a taxable basis, it is our view that the short holding period and the intention to sell do not, in and by themselves, preclude capital gains treatment to the vendor. Other factors in an actual situation could, however, result in different tax consequences, such as would be the case if the vendor's proceeds of disposition were subsequently transferred to the original owner.

These comments represent an expression of opinion and, as stated in Information Circular 70-6R2 dated September 28, 1990, are not binding on the Department. Please note that no consideration has been given herein as to whether the property is qualified farm property.

Yours truly, E. Wheeler Business and General Division Rulings Directorate Legislative and Intergovernmental Affairs Branch