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:
What are the guidelines to determine whether an activity constitutes farming.
Position TAKEN:
General comments.
Reasons FOR POSITION TAKEN:
Not Applicable.
Agriculture and Agri-Food Canada
NISA Administration
P.O. Box 6100 5-952552
Winnipeg, Manitoba L. Roy
R3C 3A4
Attention: Mitch Davies
October 13, 1995
Dear Sirs:
Re: Farming and Non-Farming Activities
This is in reply to your facsimile of September 26, 1995 in which you requested clarification with respect to activities that are considered to be farming for income tax purposes.
According to the definition of "farming" in subsection 248(1) of the Act, "farming" includes tillage of the soil, livestock raising or exhibiting, maintaining of horses for racing, raising poultry, fur farming, dairy farming, fruit growing and the keeping of bees. However, this list is not exhaustive and it has been decided by the courts that the word "farming" also includes tree farming, the operation of a wild game reserve and a mechanical hatching operation where eggs are acquired, hatched in incubators and the chicks sold within a few days of hatching. In certain factual circumstances, it is considered that "farming" includes raising fish, market gardening and the operation of nurseries and greenhouses.
Farming involves all aspects of commercial production of crop, including natural growth, but does not include the processing of goods. Therefore, where the development of the basic food product involves the growing process and natural biological changes, as opposed to artificially manufactured foods or mere processing, it is considered to be farming, even though farm workers and manually-controlled implements have been replaced by machinery and scientifically developed technical processes. Hence, the cultivation of crops in water and hydroponics or the process of growing plants in sand, gravel, or liquid, without soil and with added nutrients, are considered to be farming activities for the purposes of the Act.
In addition, it has been established that, if to best prepare his crop for market, the farmer washes and packages his potatoes or carrots, picks, trims and packages his mushrooms, dries his beans or sprays ethylene gas on his tomatoes to control colour, those activities are considered an integral part of his farming activities.
In summary, farming generally involves the growing of natural elements until their maturity, the harvesting of these elements and their commercialization. Activities that do not form part of this process may easily be characterized as processing. For instance, consider the following examples of grape growing and fish raising.
Where a person's activities involve, for example, grape growing and wine-making, it is our view that those two activities are too different to classify both as various aspects of a single commercial production. Therefore, the activities of growing grapes would be considered farming, but the activity of wine-making would not, since the end product is totally different from the raw materials and it goes beyond the natural growth stage. Growing grapes and producing wine can be compared to growing tomatoes and making tomato sauce and paste. In both scenarios, the first activity falls under the broad definition of farming, whereas the latter does not.
Where fish are raised or matured whether naturally or in an internally controlled computerized environment using scientific methods, the activity is considered to be farming, since the end product is the result of natural growth. However, the activities carried out after the fish have matured and are taken to a processing area, such as gutting, cleaning, freezing, packaging and storage of the frozen product prior to shipping, will normally qualify as processing, not farming.
When a taxpayer is carrying on a farming operation together with some other business operation (e.g., the processing of farm products), it is a question of fact dependent upon the circumstances of the case as to whether or not the farming operation can be considered a separate business. Normally, a taxpayer will be considered to operate two separate businesses if the businesses are not so interlaced, interdependent and interconnected that it is virtually impossible to separate one operation from the other. Although comprehensive rules on when business operations are of the same kind are not possible, activities that come within the definition of "farming" in subsection 248(1) of the Act, even though they may be dissimilar, constitute business operations of the same kind.
However, the Department will generally consider certain non-farming activities to be part of the farming operation where:
(i) the taxpayer carries on a bona fide farming operation;
(ii) the activities are related to the taxpayer's other farming activities;
(iii) the activities are undertaken on a small scale; and
(iv) the income generated by these activities is incidental to the taxpayer's other farming revenue.
If a taxpayer's involvement in "non-farming" activities goes beyond the above guidelines, the Department would consider these activities to be a separate business from that of the farming operation.
In addition, the Department has taken the position that the commodity trading activities of a farmer generally constitute a separate non-farming business. Given the above guidelines, in our view, the amount of income from "non-farming" activities that is included in farming income should be minimal.
We trust the above comments will be of assistance to you.
Yours truly,
for Director
Financial Industries Division
Rulings Directorate
Policy and Legislation Branch
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