3 November 1995 External T.I. 9520385 - 1995 SOUTHERN ALBERTA DISASTER RECOVERY PAYMENTS

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 payments provided under the 1995 southern Alberta Disaster Recovery Program - Agricultural Component constitutes "farm support payments".

Position TAKEN:

The payments represent "farm support payments" to be reported on an AGR-1 form.

Reasons FOR POSITION TAKEN:

The payments are received in respect of the business of farming and represent "farm support payments". Depending on the type of payment made, they should be categorized on the basis of income, current expenses or on account of capital.

L. Barrows
XXXXXXXXXX		952038

Attention: XXXXXXXXXX

November 3, 1995

Dear XXXXXXXXXX:

Re: 1995 Southern Alberta Disaster Recovery Program: Agricultural Component

This is in reply to your letter of July 27, 1995 in which you asked for our opinion as to which payments provided under the above-referenced program would constitute "farm support payments" pursuant to Income Tax Regulation 234.

XXXXXXXXXX

we are prepared to offer the following comments.

Comments

Compensation under the agricultural component is available to farm operations where full-time farmers derive their sole or a major source of income from farming. Eligible operations include proprietorships, cooperatives, corporations or communal arrangements where the income from the farm represents the primary source of income for owners partners or shareholders. The maximum payment per farm operation is $100,000 and is applicable to losses pertaining to crops, restoration of farm land and buildings and clean-up costs where other insurance coverage is not available.

Subsection 2 of Regulation 234 states that "farm support payment" includes:

(a)a payment that is computed with respect to an area of farm land;

(b)a payment that is made in respect of a unit of farm commodity grown or disposed of or a farm animal raised or disposed of; and

(c)a rebate of, or compensation for, all or a portion of

(i) a cost or capital cost incurred in respect of farming, or

(ii) unsowed or unplanted land or crops, or destroyed crops, farm animals or other farm output.

In this regard, it is our view that all payments under the agricultural component of this program are made in respect of the business of farming and, therefore, would represent a "farm support payment" to be reported on an AGR-1 form.

Based on our understanding, payments may be received in respect of crop losses, current expenses and capital expenditures. Each type of payment will be accorded different tax treatment as follows: payments relating to crop losses will represent business income and will be treated as regular farm income; payments relating to current expenses such as restoration of farmland, fence repairs and clean up costs will be included in the determination of net income (generally, by the reduction of the related expense); and payments received in relation to farm buildings and farm equipment will be treated as proceeds of disposition if the payment is on account of capital or may be included in the determination of net income if the related expenditure was for repairs to such property.

We trust these comments will be of assistance to you.

Yours truly,

R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch