1993 Internal T.I. 9332137 F - 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.

December 17, 1993

Client Assistance Directorate Head Office

G. Levesque, Chief Rulings DirectorateOther Returns & Guides Division 957-8953

933213

Treatment of Permanent Cover Program

This is in reply to your memorandum of November 4, 1993, referring to a memorandum dated August 13, 1993 dealing with a referral from the Winnipeg D.O. relating to the inclusion in income of payments received by farmers from Agriculture Canada - Prairie Farm Rehabilitation Administration ("PFRA") under the above-noted program.

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

You expressed concern that the position set out in our August 13, 1993 memorandum was a change from that taken earlier in the document "TAX STATUS OF FARM SUPPORT PAYMENTS" which you state, "was straight forward with income being taxable under section 12(1)(x) or 80(1)". We would like to point out that this is not a change in our position and neither is it a new position. The technical comments which accompanied the aforementioned document briefly explain the workings of paragraph 12(1)(x) and these comments cannot be overlooked. It is true that most, if not all, farm support payments fall within the ambit of paragraph 12(1)(x) but that does not mean that such amounts are not to be treated as cost grinds or would not have been included in computing income by virtue of some other provision of the Act.

In our view, the payments made under the "Permanent Cover Program" to the extent that they have been decreased by related expenses, if any, could be allowed as cost grinds to the cost of the land to which the payments were "in respect of". This would be in keeping with the treatment accorded similar payments, in the past, to other types of farmers. The cost grinds can only apply to the extent that there remains a cost to grind, i.e., the grind can only reduce the adjusted cost base to nil and any excess would not be required to be treated as a cost grind but would have to be included in income under paragraph 12(1)(x).

The foregoing supports the position given in our earlier memorandum and hopefully clarifies our position regarding the application of paragraph 12(1)(x) with regard to payments which are otherwise required to be brought into income or are treated as cost grinds because they are required or because the taxpayer was eligible to elect to do so, all by virtue of other provisions of the Act.R. Albertfor DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch

c.c. K. Mannion R. Ferniuk