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.
Principal Issues:
Whether milk quota, part of which does not meet the holding period requirement, can be considered a "qualified farm property" within the meaning of subsection 110.6(1)?
Position TAKEN:
Yes, however, only the milk quota that has been held for at least 24 months will be eligible for the capital gains exemption.
Reasons FOR POSITION TAKEN:
Milk quota is fungible property and the Act does not provide ordering rules regarding the disposition of eligible capital property. Nevertheless, the milk quota can be prorated in order to determine the amount of the gain that can be sheltered by the capital gains exemption. The portion of the gain on the disposition of milk quota that will be eligible for the capital gains exemption will be equal to the percentage of qualifying milk quota multiplied by the amount of the gain on the milk quota disposed of.
5-940671
XXXXXXXXXX C. Chouinard
Attention: XXXXXXXXXX
July 22, 1994
Dear Sir:
Re: Qualified Farm Property - Subsection 110.6(1) of the Income Tax Act
We are writing in reply to your letter of March 14, 1994 wherein you requested our comments on the definition of "qualified farm property" as it applies to milk quota.
In the situation you describe, most of the milk quota held by the taxpayer has been owned for a considerable period of time (in excess of 24 months). However, the taxpayer recently acquired additional milk quota. In order to qualify as a "qualified farm property", eligible capital property, such as milk quota, must be owned by a taxpayer throughout a period of at least 24 months prior to the disposition of the property. Since milk quota is fungible, you ask whether the milk quota in question constitutes "qualified farm property" in light of the fact that not all the milk quota has been owned for the requisite period of time.
Your request for a technical interpretation appears to relate to a situation which arose in respect of a specific taxpayer. As indicated in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990, a request for a written opinion on a completed transaction is generally considered by the taxpayer's local district office. Therefore, while we are unable to provide an opinion in respect of the situation outlined in your letter, we are prepared to offer the following comments.
In order to qualify as a "qualified farm property" within the meaning of subsection 110.6(1) of the Income Tax Act (the "Act"), an eligible capital property must, if it was acquired after June 17, 1987, have been owned by a person throughout the period of at least 24 months immediately preceding the disposition of the property. Accordingly, the milk quota recently acquired by the taxpayer in the situation described would not be a "qualified farm property". Since milk quota is fungible, the recently-acquired quota cannot be traced. It is therefore impossible to identify the milk quota that qualifies from that which does not qualify as a "qualified farm property".
Nevertheless, in our view, the capital gains exemption will apply to the qualifying milk quota, that is the portion of the milk quota that qualifies as "qualified farm property". In order to determine the amount of the gain that can be sheltered by the capital gains exemption, a proration of the milk quota will have to be made to determine the percentage of the milk quota that constitutes "qualified farm property" or, more specifically, the proportion that the qualifying milk quota is of the total milk quota. The amount of a gain eligible for the capital gains exemption would then be determined by multiplying the percentage of qualifying milk quota by the gain on the milk quota disposed of.
Unless as otherwise stated, all references to statute are to the Income Tax Act, S.C. 1970-71-72, c.63, as amended and consolidated to June 10, 1993.
The foregoing comments are given in accordance with the practice referred to in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990 and are not binding on Revenue Canada, Taxation.
We trust that these comments will be of assistance.
Yours truly,
R. Albert
for Director
Business and General Division
Rulings Directorate
Policy and Legislation Branch
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