4 March 1994 External T.I. 9318305 - T4-AGR SLIPS FOR FARMERS

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.

J. Humphrey
XXXXXXXXXX 931830

Attention: XXXXXXXXXX

March 4, 1994

Dear Sir:

T-4 AGR Slips to Farmers

You have asked for our opinion regarding whether the issuance of T4-AGR slips to farmers is required under various scenarios including when the debts are "written off" as assets in the Province's balance sheet but a reasonable likelihood exists that they will eventually be collected and also when the debts are absolutely extinguished.

Such information slips are required by Income Tax Regulation 234 to be issued when "farm support payments" are made to farmers. The Regulation defines "farm support payments" to include:

(a)a payment that is computed with respect to farm acreage or other area of land;

(b) a payment that is made in respect of a unit of commodity or animal grown, raised or disposed of,and

(c) a rebate of or compensation for all or a portion of

(i) a cost or capital cost incurred in respect of farming, or

(ii) unsowed land or crops, destroyed crops or output or destroyed animals.

Scenario 1

The debts in question are arrears which arose from the rental of Crown land or penalties charged on those arrears. In such cases, the farmer no longer has access to the land.

No T4-AGR slips are required because, regardless of whether the debt is written off for balance sheet purposes or extinguished absolutely, such a reduction in debt would not constitute a farm support payment nor an amount received within the meaning of paragraph 12(1)(x) of the Income Tax Act. You correctly observed that, in any event, any inclusion in income would be offset by a deduction in the same amount.

Scenario 2

When a farmer leases Crown lands upon which improvements have been made, he or she agrees to purchase the improvements at fair market value on the understanding that at the time the lease is terminated, the Crown will repurchase the improvement at the then fair market value. The amounts in issue are amounts owed by farmers at the conclusion of the lease once it has been determined that the fair market value of the improvements at that time is less than the balance owing on the original purchase.

No T4-AGR slips would be required to be issued, regardless of whether the debt is written off for balance sheet purposes or extinguished absolutely for the same reasons stated above with respect to Scenario 1.

Scenario 3

Numerous farmers have entered into "agreements for sale" in respect of Crown lands, the terms of which are similar to conditional sales agreements commonly used in purchasing consumer goods. In such agreements, the farmer makes payments of principal and interest over an amortization period similar in duration to a mortgage but only obtains legal title once the full purchase price has been paid. In the event the farmer breaches the agreement for sale, the Crown receives quiet possession of the land. Depending on the circumstances, the fair market value of the land may be greater or less than the amount owing pursuant to the agreement for sale. Under the Saskatchewan Farm Security Act, any debts owing to the Crown or vice-versa as a result of a farmer's breach of an agreement for sale are deemed to be a nullity.

XXXXXXXXXX

No T4-AGR slips would be required to be issued since a reduction in debt does not constitute a farm support payment nor an amount received within the meaning of 12(1)(x) of the Income Tax Act.

We wish to point out, however, that there may be income tax consequences to farmers under the three scenarios reviewed above.

Section 80 of the Income Tax Act, which applies when a loan, debt, or obligation of a taxpayer is settled or extinguished without any payment having been made or by a payment of an amount less than the principal amount of the debt or obligation, would seem to apply to the first two scenarios at the time the debts are extinguished absolutely. The resulting gain, for income tax purposes, must be applied to reduce certain losses of the taxpayer, to reduce the capital cost to him of certain depreciable property or to reduce the capital cost to him of certain capital property. The application of subsection 80(1) of the Act is discussed in more detail in Interpretation Bulletin IT-293R and the Special Release thereto.

Section 79 of the Income Tax Act, which applies when a vendor repossesses property under a mortgage or conditional sales agreement, would seem to apply to the third scenario you describe. That provision provides that the debtor (farmer) shall be treated as having disposed of the land in issue at the principal amount of the debt thereby extinguished. To the extent that unpaid interest is extinguished, subsection 80(1) would apply as described above.

We trust these comments will be of assistance.

Yours truly,

A.M. Brake
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch