4 November 1993 External T.I. 9321775 F - Intergenerational Transfers 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.

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Attention:  XXXXXXXXXX

Dear Sirs:

RE:  Subsection 73(3) of the Income Tax Act (the "Act")

This is in reply to your letter of July 26, 1993 requesting a technical interpretation of subsection 73(3) of the Act to a particular fact situation. You also request a determination as to whether the particular farming operation described in your fact situation constitutes the business of farming and whether the property referred to therein can be said to be used principally in that business.

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OUR COMMENTS

Whether a particular taxpayer's operation is considered to be the carrying on of a farming business is a question of fact that can only be determined after a review of all of the facts at a particular time. Generally this would require a visit to the operation by a district taxation officer in the course of an audit.

The Department's general position with respect to the meaning of a farming business is outlined in paragraphs 7 and 8 of Interpretation Bulletin IT-433 and in paragraph 6 of IT-322R. As set out in paragraph 7 of IT-433, in certain situations the operation of nurseries and greenhouses may constitute farming. See also IT-373 for information regarding woodlot operators and Christmas tree growing operations.

In addition to the foregoing references you are referred to paragraph 15 of IT-268R3 which states, "for purposes of subsection 73(3), it is always a question of fact whether a particular property ... is used in a farming business and consequently no general guidelines for such a determination can be given in this bulletin."

Whether or not particular assets are "used principally in the business of farming" is also a question of fact. In this respect paragraph 5 of IT-486R outlines the Department's position concerning assets used in a business. In essence it states that an asset is used in a business if its primary or principal use (considered to be more than 50% of its use) is in respect of that business. Paragraph 29 of IT-268R says essentially the same thing, but in addition it deals specifically with a residence owned by a farm corporation.

Although we are not in possession of all the facts, it would appear to us that some emphasis must be placed on the word "used" as used in subsection 73(3) of the Act in the phrase, "used principally in the business of farming". As approximately XXXXXXXXXX are not being "used" but are lying idle, in our opinion, only the XXXXXXXXXX of actively used property would qualify for the roll-over in subsection 73(3) of the Act, but as indicated above, even this is a question of fact to be determined from an examination of all the facts. See paragraph 19 of Interpretation Bulletin IT-268R3 for examples of partial dispositions.

We trust our comments will be of assistance to you.

Yours truly,

for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch