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 the 24-month period referred to in paragraph (a) of the definition of "share of the capital stock of a family farm corporation" is a reference to the 24-month period immediately prior to the date of disposition of the shares.
2.Whether, for purposes of paragraph (b) of the definition, the property owned by the corporation must be used principally in the course of carrying on the business of farming at the time of the disposition of the shares.
Position TAKEN:
1.The 24-month period could be any 24 continuous months while the corporation owned the property.
2.Although it is not required that the property be used in farming at the time of the disposition of the shares, the longer the property is used for other than farming purposes prior to the disposition of the shares, the less likely the shares of the corporation will meet paragraph (b) of the definition.
Reasons FOR POSITION TAKEN:
1.Wording of paragraph (a): "throughout any 24-month period".
2.Wording of paragraph (b).
5-951846
XXXXXXXXXX C. Chouinard
Attention: XXXXXXXXXX
August 24, 1995
Dear Sir:
Re: Share of the Capital Stock of a Family Farm Corporation - Subsection 110.6(1) of the Income Tax Act
We are writing in response to your letter of June 22, 1995, wherein you requested our comments on the definition of "share of the capital stock of a family farm corporation" as it relates to a hypothetical situation.
In the situation you describe, an individual owns all of the shares of a corporation which owns four quarter sections of land. The land has been used by the corporation in the business of farming from 1985 to 1990. In 1990, three of the quarters are rented out to an arm's length person and one quarter is farmed on a custom farm arrangement with another person. The individual dies on July 1, 1995 and bequeaths the shares to his spouse on a rollover basis, under subsection 70(6) of the Income Tax Act (the "Act"). On August 1, 1995, the spouse sells the shares for $500,000. You inquire whether paragraphs (a) and (b) of the definition of "share of the capital stock of a family farm corporation" in subsection 110.6(1) of the Act would be met, given that the property has not been used in the business of farming since 1990.
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, 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. In order to qualify as a "share of the capital stock of a family farm corporation", at any time (herein referred to as the "determination time"), the requirements of both paragraphs (a) and (b) of the definition must be met. Generally, the requirement in paragraph (a) is met if, throughout any 24-month period ending before the determination time, more than 50% of the fair market value of the property owned by the corporation was attributable to property used in farming on a regular and continuous basis by a person or persons described in subparagraph (a)(i) of the definition. One such person could be the spouse of the individual and the 24-month period could be any 24 continuous months while the corporation owned the property.
While the 24-month period does not have to be immediately prior to the determination time and could, for purposes of paragraph (a) of the definition, be a period that ended 5 years prior to the determination time, such a situation could prevent a corporation from meeting the paragraph (b) requirement that all or substantially all of the fair market value of the property owned by the corporation at the determination time be attributable to property that was used principally in the course of carrying on the business of farming. Property will meet this "principally used" test where more than 50% of its use is in the business of farming. For instance, in the situation described above, since the period of time that the property was farmed (from 1985 to 1989) is shorter than the period of time during which it was not used in farming (from 1990 to July 1995), the shares would not meet paragraph (b) of the definition of "share of the capital stock of a family farm corporation", since the property owned by the corporation would not have been principally used in the course of carrying on the business of farming.
Therefore, as regards the 24-month period, it does not have to be the 24-month period immediately prior to the determination time. However, the longer the property owned by the corporation is used for other than farming purposes prior to the determination time, the less likely the shares of the corporation will meet paragraph (b) of the definition of "share of the capital stock of a family farm corporation".
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
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1995
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1995