11 October 1995 External T.I. 9517005 - QUALIFIED FARM PROPERTY - ATTRIBUTION RULES

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:

1.Whether land which has not been farmed since 1976 constitutes qualified farm property.

2.Whether the attribution rules apply to attribute capital gains where the property in question was acquired in 1964.

Position TAKEN:

1.Only the portion that is not the taxpayers' principal residence constitutes qualified farm property.

2.Attribution rules will not apply.

Reasons FOR POSITION TAKEN:

1.Paragraph 40(2)(c) provides that any gain on the disposition of farming property that includes property that is a principal residence must be calculated using one of two methods.

The remaining portion would constitute "qualified farm property" if it meets the requirements of the definition of "qualified farm property".

2.Subsection 74(2) of the Act applies to property transferred after 1971 and subsection 74.2(1) of the Act applies to property transferred after May 22, 1985.

										5-951700
XXXXXXXXXX	C. Chouinard

Attention: XXXXXXXXXX

October 11, 1995

Dear Sir:

Re: Qualified Farm Property

We are writing in response to your letter of June 9, 1995, wherein you requested our comments on the definition of "qualified farm property" as it relates to a particular situation.

In the situation you describe, a husband and wife acquired, as joint tenants, a 13 acre strawberry, loganberry and truck farm in 1964. The farm was purchased with a downpayment provided by the husband and a mortgage. From 1964 to 1976, the property was farmed on a full time basis and farming was the principal source of income of the husband and wife. In 1976, the taxpayers ceased to farm the property due to the husband's ill health. The taxpayers sold the property, except for 3 acres and the principal residence. The land they retained has not been put to any use. The taxpayers are considering selling or gifting the land to their children.

You inquire whether there was a change in use of the property in 1976 from income producing to personal use. You also inquire whether the 3 acre parcel and the land on which the principal residence is situated meets the definition of "qualified farm property". In your view, the 3 acre parcel and the principal residence constitute "qualified farm property", since it is real property owned by the taxpayers, that was used by the taxpayers in the course of carrying on the business of farming in Canada in at least 5 years during the period of ownership. In addition, you ask us to confirm that the attribution rules will not apply to attribute the wife's capital gain to the husband, since the property was acquired prior to 1972.

Our Comments

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. Where the particular transactions are completed, as is the case in respect of the 1976 events, the enquiry should be addressed to the relevant Tax Services 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.

Where a taxpayer disposes of land used in a farming business and such land includes property that was at any time the taxpayer's principal residence, paragraph 40(2)(c) of the Income Tax Act (the "Act") provides that any gain on the disposition of the land may be calculated using either one of two methods described in paragraphs 27, 28 and 29 of Interpretation Bulletin IT-120R4, a copy of which is enclosed.

As regards the land which does not constitute the taxpayer's principal residence, we agree with your view that it would qualify as a "qualified farm property", since it appears to meet the requirements of the definition of "qualified farm property" in subsection 110.6(1) of the Act, namely, it is real property acquired prior to June 18, 1987 and it was used by the taxpayers in the course of carrying on the business of farming in Canada in at least five years during which the property was owned by the taxpayers.

We also confirm that where property was transferred to a spouse prior to 1972, the attribution rules will not apply to attribute the capital gain to the other spouse, since subsection 74(2) of the Act applies to property transferred after 1971 and subsection 74.2(1) of the Act applies to property transferred after May 22, 1985.

Although we cannot comment on your query regarding change in use, we would like to indicate that, as regards vacant land, non-use does not constitute use.

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.

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

Encl.