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 real property qualifies as "qualified farm property" within the meaning of subsection 110.6(1) of the Income Tax Act (the "Act").
Position TAKEN:
Given lack of information, cannot determine whether property would qualify as "qualified farm property".
Reasons FOR POSITION TAKEN:
No information was provided as to who, if anyone, farmed the property.
5-950890
XXXXXXXXXX C. Chouinard
April 19, 1995
Dear Sir:
Re: Qualified Farm Property
We are writing in response to your letter of March 31, 1995, wherein you inquired whether real property owned by your spouse would qualify as "qualified farm property" within the meaning of subsection 110.6(1) of the Income Tax Act (the "Act").
You indicate that the property was acquired by your spouse from her parents in 1970. It is her share of the homestead farm which her great grand-father pioneered. The property is presently farmed by a local Manitoba farmer.
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.
One of the conditions that must be met for a property to be considered a "qualified farm property" within the meaning of subsection 110.6(1) of the Act, is that the property be used in the course of carrying on the business of farming in Canada. Property acquired before June 18, 1987 will qualify as "qualified farm property" provided it was used by the person claiming the capital gains exemption, a spouse, child or parent of such a person, a family farm corporation in which any of the above persons own shares, a family farm partnership in which any of the above persons have an interest or a personal trust from which the individual acquired the property, principally in carrying on the business of farming in Canada, either in the year the property is disposed of, or in at least five years during which it was owned by the individual, a spouse, child or parent of the individual, a personal trust from which the individual acquired the property or a family farm partnership.
It is not clear from your letter whether your spouse, yourself, your children or your spouse's parents have ever actively farmed the property. Since the property was acquired by your spouse prior to June 18, 1987, if it has been used by any of the aforementioned persons principally in the course of carrying on the business of farming in at least five years during which the property was owned by either your spouse, yourself, your children or your spouse's parents, it would qualify as "qualified farm property" and hence, be eligible for the $500,000 capital gains exemption.
If the capital gains election were filed in respect of this property and the property qualified as "qualified farm property", it would be deemed to have been disposed of and immediately reacquired by your spouse after February 22, 1994. Therefore, the property would be considered to have been last acquired after June 17, 1987. However, the fact that the capital gains election gives rise to a new acquisition date does not necessarily mean that property which previously qualified as "qualified farm property" will no longer qualify as such. Although an individual who acquired farm property after June 17, 1987 may not have farmed the property since he or she acquired it, in our opinion, the person meeting the gross revenue test in subparagraph (a)(vi) of the definition of "qualified farm property" need not be the person who owns the property and may be any of the persons mentioned above. Therefore, in certain situations, the property may continue to meet the definition of "qualified farm property" notwithstanding the new acquisition date, if, in at least 2 years while the property was owned by one of the persons mentioned above or by a personal trust from which the individual acquired the property, the gross revenue of such a person from the farming business in which the property was principally used and in which the person was actively engaged on a regular and continuous basis exceeded their income from all other sources for the year.
There may, however, be situations where, as a result of filing the capital gains election, property which constitutes "qualified farm property" ceases to qualify as such since it fails to meet the gross revenue test found in the "qualified farm property" definition. For instance, farm property acquired by an individual prior to June 18, 1987 which, since its acquisition, has been farmed by the individual while they were employed in another capacity, would qualify as "qualified farm property" since it would have been used principally in the course of carrying on the business of farming in Canada in at least five years during which it was owned. However, if the capital gains election were filed in respect of this property, it might no longer qualify as "qualified farm property" since the individual might not meet the gross revenue test of subparagraph (a)(vi) of the definition of "qualified farm property", which generally applies to property acquired after June 17, 1987.
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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