26 October 1993 Administrative Letter 9322656 F - Deferred Property Tax

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.

Client Assistance Directorate Business and General Other Returns & Guides Division

Attention:  G. Levesque, Chief (613) 957-2139

Taxability of Farm Support Payments Available in the Province of New Brunswick

This is in response to your memorandum of August 9, 1993, wherein you requested our views on the taxability of benefits enjoyed under the Farm Land Identification Program available in the Province of New Brunswick. The program is administered by the Department of Agriculture for the Province of New Brunswick under provincial statute (the "Real Property Tax Act").

It is our understanding, as indicated in the brochure describing the program, that the Farm Land Identification Program is a tax deferral Program which began in 1979 as a way to encourage land owners to maintain their agricultural land available for future agricultural production. It does this by allowing a property owner to voluntarily enter into an agreement with the government whereby the owner agrees to keep the land and/or buildings available for agricultural use and in return the government will defer the payment of the Provincial Real Property Tax. The provincial real property tax rate which is deferred is the amount of $1.50 per $100 of the assessed value of the farmland and/or farm outbuildings. This agreement and deferral will continue with automatic renewal each year as long as the property remains eligible. However, if the property does not remain eligible for the deferral it will be deregistered causing the deferred taxes to become due and payable.

Deregistration will occur if the land is not kept cleared or if the land and/or outbuildings are put to non-agricultural use. The owner may also withdraw from the program at any time but on doing so the deferred taxes become due and payable. Regardless of the reason for withdrawal, there is also a penalty which is the interest on the money from the date it would have been payable without the deferral to the date of the actual payment. If the property has been registered for more than ten years only the deferred taxes for the last ten years become due and payable.

In 1988 the program was changed to include farm outbuildings as eligible for deferment. In order to ensure that only genuine farm outbuildings are included the real property owner must be someone who makes his/her living from the farm. This is proven by the possession of a valid tax exempt group identification card number issued by the New Brunswick Department of Finance which must be verified before an application can be processed.

The relevant provisions of the New Brunswick Real Property Tax Act are as follows:

5(1) Subject to subsection (4), each year there shall be a tax on all real property

(a)     at the rate of one dollar and fifty cents on each one hundred dollars valuation of real property being residential property; or

(b)     at the rate of two dollars and twenty-five cents on each hundred dollars valuation of real property being non- residential property

5(6) Notwithstanding subsection (1), no taxes are payable in respect of real property registered under the farm land identification program established pursuant to the regulation, subject to the terms and conditions prescribed by regulation.

5(7) Where real property registered under the farm land identification program ceases to be registered under the program as a result of a breach of any term or condition prescribed by the farm land identification program, the person in whose name the real property is assessed is liable to pay in respect of that real property the taxes and penalties that would have been payable if the real property had not been registered, from the date of the registration of the real property to the date the real property ceased to be registered, or ten years, whichever is less.

New Brunswick Regulation 84-75 provides, inter alia, that

1 This Regulation may be cited as the Farm Land Identification Regulation - Real Property Tax Act

2 In this Regulation

"farm land" means real property registered under the program;

"farm outbuildings" means the operational and storage facilities of an operating farm, including poultry houses, potato storage sheds, greenhouses, nurseries, piggeries and shelters for animals, food and machinery for providing to the operational and storage facilities but not including storage or processing equipment of commercial operations, elevators, slaughter facilities or storage facilities that are not directly a part of the farm operation.

"program" means the Farm Land Identification Program

5(1) The following real property shall be eligible for registration under the program:

(a)     land used for the production of agricultural products;

(b)     land capable of being used for agricultural production in the year of application;

(c)     land which is being cultivated from time to time or managed for the production of food for humans or livestock; and

(d)     land referred to in paragraph (a), (b), or (c) and farm outbuildings.

7 Notwithstanding section 5, no real property shall be registered under the program if it cannot be classified as real property capable of use for agricultural purposes on a commercial basis at the time of application for registration under the program.

Our Comments:

Briefly, paragraph 12(1)(x) of the Income Tax Act (the "Act") provides, inter alia, that there shall be included in computing the income of a taxpayer for a taxation year as income from a business or property any amount received by the taxpayer in the year, in the course of earning income from a business or property, from a government where the amount (received) can reasonably be regarded as:

1)     an inducement, whether as a grant, subsidy, forgivable loan, deduction from tax, allowance or any other form of inducement, or

2)     as a reimbursement, contribution, allowance or as assistance, whether as a grant, subsidy, forgivable loan, deduction from tax, allowance or any other form of assistance, in respect of the cost of property or in respect of an outlay or expense.

However, paragraph 12(1)(x) also provides, inter alia, that the amount will only be brought into income to the extent that the amount was not otherwise included in computing the taxpayer's income or deducted in computing, for the purposes of this Act, any balance of undeducted outlays, expenses or other amounts, for the year or a preceding taxation year, or does not reduce, for the purposes of this Act, the cost or capital cost of the property or the amount of the outlay or expense as the case may be.

Farmers using the cash basis of reporting income as is allowed under subsection 28(1) of the Act, would only reflect these deferred property taxes and related interest as an expense if and when they actually pay them. Farmers on the accrual basis of reporting income would not be entitled the deferred property taxes as an expense by virtue of either paragraph 18(1)(a) of the Act since they would not have been "incurred" or paragraph 18(1)(e) of the act since they would represent a "reserve" or a "contingent liability". Farmers on the accrual basis would be entitled to deduct the property taxes and related interest as an expense only when they withdraw from the program. At this point in time, the property taxes become due and payable and neither paragraphs 18(1)(a) or 18(1)(e) of the Act would apply.

In our view, the deferral of property taxes provided in the Farm Land Identification Program, as described above, does not result in a paragraph 12(1)(x) income inclusion.

for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch