26 August 1993 Income Tax Severed Letter 9315985 - Qualified 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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

                                           931598
XXXXXXXXXX                                 A. M. Brake
                                           (613) 957-2133

Attention: XXXXXXXXXX

August 26, 1993

Dear Sirs:

Re: Definition of "Qualified Farm Property"

This is in reply to your letter of May 28, 1993 in which you requested our interpretation as to whether a particular property described in a hypothetical fact situation is a "qualified farm property" as defined in subsection 110.6(1) of the Income Tax Act (the "Act"). Also, you expressed the view that "the period of at least 24 months immediately preceding that time" as set out in subparagraph 110.6(1)(a)(vi) of the Act, referring to the ownership requirement immediately prior to sale of a property, contemplates successive ownership of the property during the relevant 24 month period as long as all persons who own the property during that time are persons enumerated in the definition.

It appears that your enquiry relates to specific transactions, either proposed or completed. Where a transaction is proposed, confirmation of the tax implications arising therefrom should be sought by way of an advance ruling request submitted in the manner set out in Information Circular 70-6R2. Where a completed transaction is involved, the enquiry should be addressed to the relevant District Taxation Office. We offer, however, the following general comments.

Pursuant to clause 110.6(1)(a)(vi)(B) of the Act, a real property is considered to have been used in the course of carrying on the business of farming in Canada where the property was used by a corporation referred to in subparagraph 110.6(1)(a)(iv) of the Act principally in the course of carrying on the business of farming in Canada throughout a period of at least 24 months during which time an individual referred to in any of subparagraphs 110.6(1)(a)(i) to (iii) was actively engaged on a regular and continuous basis in the farming business in which the property was used.

In our view, a real property rented by an individual throughout a period of at least 24 months to a corporation, a share of the capital stock of which is a share of a family farm corporation of the said individual, at the determination time, would be a property used by a corporation referred to in subparagraph 110.6(1)(a)(iv) of the Act for the purposes of clause 110.6(1)(a)(vi)(B) of the Act.

With regard to the ownership requirement "of at least 24 months immediately preceding" the time of sale, if a child owned a property for 8 months up to the time the property was sold and the parent owned it for the previous 16 or more months, in our view, the ownership requirement will have been met.

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 parent 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 child under subsection 73(3) or subsection 73(4) of the Act and they immediately sell to the third party, the child could be considered to be an agent of the parent. In such a scenario, the gain would be a gain of the parent rather than the child. Alternatively, GAAR would be relevant if the transfer to the child was entered into merely as an avoidance transaction. Depending on the facts, it is also possible to consider the sale by the child 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 above comments reflect an expression of opinion only and are not binding on the Department, as explained in paragraph 21 of Information Circular 70-6R2. We trust, however, that they are of assistance.

Yours truly,

R. Albert for Director Business and General Division Rulings Directorate Legislative and Intergovernmental Affairs Branch