17 December 1993 Income Tax Severed Letter 9324497 - Farm Support Payments

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.

                                         December 17, 1993

  Charlottetown District office          Head Office
  Patricia Moran-Kelly                   Rulings Directorate
  Audit Division                         (613)957-8953

                                         932449
  Tax Information Slips

This is in reply to your memorandum of August 24, 1993 relating to the taxability of farm support payments described as follows:

1. Livestock & Poultry Exhibitors 2. Beef Genetics 3. Lean Beef Program 4. Farm Separated Cream Assistance Program 5. Ranched Fur Advance Payment Program 6. Ram Bonus Program 7. Hog Transportation Assistance—West Prince 8. Pro-Pork Assistance Program 9. Swine–Boar & Gilt Bonus 10. Crop Exhibitors—RWF 11. Limestone/Mussel Mud Incentive Program 12. Positive & Contact Regulated Diseases 13. Potato Cull Burial 14. Potato seed incentive 15. Agriculture Drainage Improvement 16. Manure Management

Reference to statute provisions such as section, subsection, etc., mentioned herein, will, in all cases unless otherwise specified, relate to the Income Tax Act (the "Act").

Our comments

5. Ranched Fur Advance Payment Program

With regard to the government guarantee under this program regarding advances to the Rancher, the guarantee itself will not give rise to tax. However, section 80 should apply to the borrower with respect to the settlement of the debt without any payment by the person who received the advances or payment of an amount less than the principal amount. Direct payment of interest (relating to advances to the rancher) by the government to the P.E.I.Lending Agency, should the rancher not have a legal obligation for such interest, would, in our view, be income in the hands of the Agency but would not constitute income or be a deductible expense to the rancher. However, should it be that the rancher is legally responsible for payment of this interest and payment is made by the government on his behalf, the payment would, in our view, constitute income in the hands of the rancher with an offsetting amount being allowed as an expense.

8. Pro-Pork Assistance Program

The value of the free assistance given under this program would not constitute an income amount in the hands of the recipient.

With the exception of 5. and 8., which we have commented on separately above, it is our view that amounts received by a taxpayer under the remainder of the above listed programs are income to the taxpayer to the extent that they have not been applied to reduce costs related to the undertakings for which they were specifically intended. For taxpayers reporting on an accrual basis, subsection 9(1) would apply to take these amounts into consideration in computing income in accordance with generally accepted accounting principles ("GAAP"). Similarly, subsection 28(1) would require amounts to be brought into income for a person electing to report on the "cash basis". Should a particular amount be required to be included in the computation of income by virtue of either of the above provisions or paragraph 12(1)(a), such an amount would fall within the exception contained in subparagraph 12(1)(x)(v) and would be considered to have been included in income otherwise than by virtue of paragraph 12(1)(x).

However, the amounts in question (other than 5. and 8.) clearly fall within the ambit of the wording of subparagraphs 12(1)(x)(ii) through (iv) and should any particular amount not fall within the subparagraph 12(1)(x)(v) exception by virtue of the fact that it was not otherwise required to be included in income or deducted in computing undeducted outlays, expenses or other amounts by virtue of some other provision of the Act, the excess, if any, would be required to be included in income by virtue of paragraph 12(1)(x). Where such an amount relates to an expense or outlay, the taxpayer may choose to reduce the amount of his deduction in respect of such outlay or expense.

It is possible that payments made in accordance with the "15. Agriculture Drainage Improvement" program for the cost of drainage pipes may constitute the acquisition of a depreciable asset and, therefore, the assistance received in this regard would, by virtue of subsection 13(7.1), require a grind to reduce the capital cost of such an asset. Otherwise, none of the remaining payments would be considered to be in respect of the cost of capital or depreciable property acquired by the taxpayer. Hence, there would be no other cost grinds required under subsection 13(7.1) and paragraph 53(2)(k). Also, because the amounts were not "received in respect of, or for the acquisition of, the property", there would not be any amounts upon which the taxpayer could elect to have grinds to the cost of capital or depreciable property as permitted under subsection 13(7.4) or paragraph 53(2)(s).

However, in a situation where an amount relates to the cost of capital or depreciable property, the taxpayer may choose to reduce the capital cost of such property by the amount that would otherwise be required to be included in income under paragraph 12(1)(x). The amount by which the taxpayer reduces his deduction of an outlay or expense or reduces his cost or capital cost of property would not be required to be included in income. (See Appendix A for technical description).

Where a taxpayer repays an inducement, assistance, etc., that was included in income under paragraph 12(1)(x), the taxpayer in computing income may pursuant to paragraph 20(1)(hh) deduct the amount repaid in that year.

T-Slips will be required for farm support payments where such payments fall within the ambit of paragraphs 12(1)(x)(ii) through (iv) unless the total amount paid to the recipient in the year in respect of a specific program is less than $100. For example, if a producer receives in a year farm support payments totalling $50 from program A and $125 from program B, T-Slips will be required in respect of the $125 from program B but T-Slips will not be required in respect of the $50 received from program A. If you wish to discuss this further, please contact Jean-Claude Laporte at 954-5377, or Yvon Racine at 952-0510 at our Client Assistance Directorate.

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

c.c. J-C Laporte Client Assistance Directorate