20 December 1994 External T.I. 9428275 - FARM BUSINESS

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 a farming operation constitutes a farming business

Position TAKEN:

Question of fact. Criteria to be considered set out in IT-332R

Reasons FOR POSITION TAKEN:

Wide definition of "farming" at 248(1) of the Act (list not exhaustive)

				5-942827

XXXXXXXXXX		M. Shea-DesRosiers

December 20, 1994

Dear XXXXXXXXXX:

This is in reply to your letter of October 27, 1994 concerning the meaning of "farm business" in regards to property purchased before June 18, 1987 which expression is found in the 1993 Farming Income Tax Guide at page 34, "the property was used in a farm business in Canada for at least five years...".

It is a question of fact whether a particular farming operation constitutes a farming business at any particular time. It is also a question of fact whether a taxpayer is actively engaged on a regular basis in the operation of a farm business. Questions of fact of this nature are usually resolved by Officials of the local district office who are generally in a better position to appreciate all the circumstances of a particular case. The following general comments may however be of assistance to you.

Some of the criteria which should be considered in determining whether or not a farming operation is a business are set out in Interpretation Bulletin IT-332R at paragraph 4. In summary, they are :

1.the extent of activity in relation to that of businesses of a comparable nature and size in the same locality. The main test is the size of the property used for farming. If it is much too small to give any hope of profit, the presumption is that the property is being held for personal use or enjoyment of the taxpayer.

2.Time spent on the farming operation in comparison to that spent in employment or other income-earning capacity. If the taxpayer spends most of his or her time during the crop season attending to the farm, there is a strong presumption that he or she is carrying on a farming business.

3.The development of the farming operation and commitments for future expansion according to the taxpayer's available resources.

4.Qualification of the taxpayer for some type of provincial farming assistance.

The most usual indication that a farming operation does not constitute a business with a reasonable expectation of profit is that it reports little or no amount of gross income for several years. Paragraph 5 of IT-322R gives examples of activities which do not constitute the carrying on of a farm business.

As explained in paragraph 6 of IT-322R ,the word "farming " is given a wide definition in subsection 248(1) of the Income Tax Act (the "Act"). It includes tillage of the soil, livestock raising or exhibiting, maintaining of horses for racing, raising of poultry, fur farming, dairy farming, fruit growing and the keeping of bees. However, this list is not exhaustive and it has been decided by the courts that the word "farming" also includes tree farming and the operation of a wild game reserve. In certain factual circumstances it is considered that "farming" includes raising fish, market gardening, the operation of nurseries and greenhouses, and the operation of a chick hatchery.

However, the definition of "farming" does not include an office or employment under a person engaged in the business of farming.

The Department's general position with respect to the meaning of farming business is also outlined in paragraph 8 of It-433R and paragraph 9 of Interpretation Bulletin 145R and paragraph 2 of Special Release to IT-145R. Paragraph 9 of IT-433R gives a list of various sources of income and indicates whether they can be considered to be part of a farming business.

For your information we enclose copies of IT-322R, IT-433R, IT-145R and Special Release to IT-145R.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate