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 farm property transferred to a spouse on death pursuant to subsection 70(6.2) constitutes "qualified farm property", where the gross revenue from farming of the deceased spouse who farmed the property was, in all the years the property was farmed, less than his income from other sources.
Position TAKEN:
Property will not constitute "qualified farm property".
Reasons FOR POSITION TAKEN:
Where property was acquired after June 17, 1987, in order to qualify as "qualified farm property", in at least 2 years while the property was owned by any of the persons described in subparagraphs (a)(i) to (iii), the gross revenue from the farming business carried on by such a person must have exceeded his or her income from all other sources for the year. In this situation, neither the taxpayer nor her spouse would meet the gross revenue test.
5-950883
XXXXXXXXXX C. Chouinard
Attention: XXXXXXXXXX
April 19, 1995
Dear Madam:
Re: Qualified Farm Property
We are writing in reply to your letter of February 15, 1995, wherein you requested our comments on the definition of "qualified farm property" in subsection 110.6(1) of the Income Tax Act (the "Act").
In the situation you describe, a taxpayer owning farm property used the property principally in the course of carrying on the business of farming in Canada from 1962 to 1980. However, during those years, the taxpayer also carried on a construction business. The gross revenue from farming during the 1962 to 1980 taxation years was less than the income earned by the taxpayer from other sources. After 1980, the taxpayer ceased farming the property and rented it out to an arm's length person. In 1990, the taxpayer died, and in accordance with the terms of his will, the farm land was transferred to his spouse. An election under subsection 70(6.2) of the Act was filed to transfer the property to the spouse at fair market value under subsection 70(5) of the Act. As a result, a capital gain of $250,000 was reported on the taxpayer's final return and a corresponding amount of the capital gains exemption in respect of qualified farm property was claimed.
The spouse died in 1995. There was an accrued capital gain of $300,000 in the property at the time of her death. You ask whether the property would constitute "qualified farm property" of the spouse and whether our answer would be different if the taxpayer had not made a subsection 70(6.2) election at the time of his death.
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.
Where a taxpayer dies leaving farm property which, according to his will, must be transferred to his spouse, subsection 70(6) of the Act provides that the taxpayer is deemed to have disposed of the property immediately prior to his death and to have received proceeds of disposition equal to the adjusted cost base and his spouse is deemed to have acquired the property for an amount equal to those proceeds. Where the legal representative of the taxpayer elects under subsection 70(6.2) of the Act, subsection 70(5) of the Act applies and the taxpayer is then deemed to have disposed of the property immediately before his death and to have received proceeds of disposition equal to the fair market value of the property at that time and his spouse is deemed to have acquired the property for an amount equal to those proceeds.
Therefore, whether subsection 70(5) or 70(6) of the Act applies to a transfer of property to a spouse upon death, in our opinion, a spouse is deemed to have acquired property transferred to him or her under the above-mentioned provisions at the time of the other spouse's death. As you have noted, there is no provision in the Act relating to "qualified farm property" which is similar to paragraph 110.6(18)(c) of the Act which provides rules with respect to the acquisition date of eligible real property in certain circumstances, including where property has been acquired pursuant to subsection 70(6) of the Act. Accordingly, in the situation you describe, the spouse would be deemed to have acquired the farm property at the time of the taxpayer's death in 1990.
The definition of "qualified farm property" in subsection 110.6(1) of the Act generally requires that the real property in question be used in carrying on a farming business in Canada by the taxpayer, their spouse, any of the taxpayer's children, or the taxpayer's parents. For this purpose, real property acquired after June 17, 1987 must have been owned by the taxpayer, their spouse, any of the taxpayer's children or the taxpayer's parents throughout the 24 months preceding the sale. Furthermore, in at least 2 years while the property was so owned, the gross revenue from the farming business carried on by any of these individuals must have exceeded their income from all other sources for the year. In our opinion, the person meeting the gross revenue test need not be the person who owns the property and may be any of the persons described in subparagraphs (a)(i) to (iii) of the definition of "qualified farm property". Therefore, in the situation described above, the property owned by the spouse upon her death would not constitute "qualified farm property" within the meaning of subsection 110.6(1) of the Act since neither she nor her spouse would meet the gross revenue test which applies to farm property acquired after June 17, 1987.
With respect to the meaning of the words "at any particular time" which appear in the preamble of the definition of "qualified farm property", in our opinion, these words simply mean at the time under consideration, which in your situation, is the time of death of the spouse in 1995. In order to determine whether the property qualified as "qualified farm property" at that time, it is necessary to establish the last date of acquisition of the property, since different criteria are applied to property that was acquired prior to June 18, 1987. As we indicated above, since the spouse in this situation would be considered to have acquired the property at the time of her husband's death in 1990, subparagraph (a)(vi) of the definition of "qualified farm property" would have to be considered.
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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