29 June 1993 External T.I. 9305235 F - Transfer of Farm Property

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.

XXXXXXXXXX

Attention:  XXXXXXXXXX

Dear Sirs:

RE:  Capital Gains on Transfer of Farm Assets

This is in reply to your letter of February 12, 1993, wherein you described a situation where a mother and four children own farmland and production quota that, presumably, meet all the requirements for the capital gains deduction as qualified farm property as provided by subsection 110.6(2) of the Income Tax Act (the "Act"). The mother intends to transfer a part of her quota and farmland assets to each of her children at her tax cost and they will then transfer these assets to the family farm corporation realizing capital gains and will utilize the provisions of section 110.6 of the Act to reduce or eliminate income tax on these gains. You asked whether subsection 245(2) of the Act would have any application to the proposed transactions.

It appears that the interpretation you seek relates to completed or current transactions which should be the subject of a written request to a District Office. Requests concerning proposed transactions to be undertaken by a specific taxpayer should be the subject of an advance income tax ruling request as discussed in Information Circular 70-6R2 dated September 28, 1990 issued by Revenue Canada, Taxation. If you wish to obtain an advance income tax ruling for a particular taxpayer with respect to specific transactions which are contemplated, a written request for an advance income tax ruling can be submitted in accordance with the Information Circular. Nevertheless, we can offer the following general comments.

Our Comments:

We assume that there will be a change in beneficial ownership from the mother to the children and that subsection 75.1(1) of the Act is not applicable. Subsection 73(3) of the Act provides for the transfer of farm property from a farmer to one or more of his or her children with no tax being exigible to either the transferor or the transferees on the transfer. The aforementioned provision places no restrictions on the recipients as to how long they must keep the property or what use they must make of it. Hence, they are at liberty to dispose of the transferred property to whomever and in any manner they choose including transferring the property to a family farm corporation and realizing any advantage that may ensue by virtue of the elected amounts chosen in the rollover. Accordingly, in a simple situation such as described above, there would not appear to be misuse of a provision of the Act or abuse of the Act read as a whole, within the meaning of those terms in subsection 245(4). If, however, the situation was amplified and the mother had agreed to sell the farm property or shares of a family farm corporation to a third party, non-related or related, but before doing so transfers the property/shares to the children under subsection 73(3) or subsection 73(4) of the Act and they immediately sell to the third party, the children could be considered to be agents of their mother. In such a scenario, the gain would be a gain of the mother rather than the children. Alternatively, GAAR would be relevant if the transfer to the children was entered into merely as an avoidance transaction. Depending on the facts, it is also possible to consider the sale by the children of the farm property/shares to be on account of income rather than capital in which case the deduction under subsection 110.6(2) of the Act would not be available.

The foregoing comments are an expression of our opinion only and are not to be construed as an advance income tax ruling and, as such, are not binding on Revenue Canada, Taxation.

We trust that these comments will be of assistance.

Yours truly,

R. Albert for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch