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 the $500,000 capital gains exemption would be available to each beneficiary of the estate of a deceased taxpayer in respect of the disposition of property held by the estate which was farmed by the deceased taxpayer prior to his death in 1967.
Position TAKEN:
May be available.
Reasons FOR POSITION TAKEN:
If the property was used by the deceased taxpayer principally in the course of carrying on the business of farming for at least 5 years while it was owned by the deceased taxpayer and the estate makes a designation in respect of the beneficiaries of the estate under paragraph 104(21.2)(b), the beneficiaries may qualify for the $500,000 capital gains exemption upon disposition of the property by the estate.
5-950626
XXXXXXXXXX C. Chouinard
March 31, 1995
Dear Sir:
Re: Capital Gains Exemption - Qualified Farm Property
We are writing in response to your letter addressed to the XXXXXXXXXX Tax Services office which was forwarded to us for reply on March 3, 1995.
You inquire whether the $500,000 capital gains exemption will be available with respect to farm property which forms part of a deceased taxpayer's estate. The beneficiaries of the estate are the children of the deceased taxpayer. The property was used in a farming business by the children's father until the time of his death in 1967. Since his death, the property has been rented out for billboard signs. If the property constitutes "qualified farm property", you also inquire whether the estate could flow out the capital gains that would arise from the disposition of the property to the beneficiaries, such that each beneficiary could claim the $500,000 capital gains exemption.
In addition, you inquire whether a disposition of "qualified farm property" occurred when one of the beneficiaries died in 1994, leaving his share of the estate to his son.
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R2. The following comments are, therefore, of a general nature only, and are not binding on the Department.
In the situation you describe, as the farm property is owned by a trust, the property must have been used in the business of farming by a designated beneficiary, the spouse, child or parent of a designated beneficiary, a family farm partnership in which any of the above persons have an interest, or a family farm corporation in which any of the above persons own shares, in order for it to meet the definition of "qualified farm property". The designated beneficiary must be one in respect of whom a designation has been made by the trust under subparagraph 104(21.1)(b)(ii) of the Act. In your situation, since the deceased taxpayer's children are the only beneficiaries of the estate, they could be a beneficiary referred to in paragraph 104(21.2)(b) of the Act if the trust designates an amount under subsection 104(21.1) in respect of the children.
As an additional requirement, where the property was acquired prior to June 18, 1987, it must have been used by any of the above-mentioned persons principally in the course of carrying on the business of farming in Canada, either in the year the property was disposed of or in at least 5 years during which the property was owned by a person referred to above. Accordingly, in this situation, if the estate made a designation in respect of the children whose parent was the deceased taxpayer and the latter used the property principally in the course of carrying on the business of farming for at least 5 years during which he owned the property, the property would qualify as "qualified farm property" of the trust and each beneficiary referred to in paragraph 104(21.2)(b) of the Act would qualify for the $500,000 capital gains exemption upon disposition of the property by the estate.
As regards the beneficiary who died in 1994, since the property he owned at the time of his death was an interest in a trust and as an interest in a trust that owns farm property does not qualify as a "qualified farm property", he could not claim the $500,000 capital gains exemption in respect of the deemed disposition of his interest in the trust upon death. He may, however, be entitled to claim the $100,000 capital gains exemption since he is deemed under subsection 70(5) of the Act to have disposed of his interest in the trust at its fair market value at the time of his death. Since the $100,000 capital gains exemption has been eliminated for all dispositions occurring after February 22, 1994, if the beneficiary died after this date, the capital gains election will have to be filed in order to claim the $100,000 exemption.
Furthermore, if the estate were to dispose of the farm property, the deceased beneficiary's son could be entitled to claim the $500,000 capital gains exemption since, for purposes of the definition of "qualified farm property", "child" has the meaning assigned by subsection 70(10) of the Act. Accordingly, a grandfather can be considered a "parent" of an individual because of the extended definition of "child" in paragraph 70(10)(a) of the Act, which applies for purposes of section 110.6 of the Act. Therefore, since the son of the deceased beneficiary could be a beneficiary referred to in paragraph 104(21.2)(b) of the Act and since his grandfather is considered to be a "parent", if the property was used by the grandfather in the course of carrying on the business of farming for at least 5 years during which he owned the property, the son of the deceased beneficiary would qualify for the $500,000 capital gains exemption upon disposition of the property by the estate.
We trust that these comments will be of assistance.
Yours truly,
R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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