7 November 1995 Internal T.I. 9527677 - 12(1)(X)

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.

Agri-Land Sales & Leasing
900-1801 Hamilton Street
Regina, Saskatchewan 952767
S4P 4L5 A.M. Brake

Attention: Tim R. Frass, CMA, CA.

November 7, 1995

Dear Sirs:

Re: Western Grain Transition Payments Program ("WGTPP")

This is in reply to your letter of September 13, 1995 to the Regina Tax Services Office regarding the treatment to be given payments received under the WGTPP and later disbursed to tenants and purchasers of farm land as described below.

It is our understanding that all land is held as inventory for sale by Farm Credit Corporation ("FCC") and that any gain or loss resulting from all sales would be on account of income rather than on account of capital.

You asked for our comments on two situations which can be summarized as follows:

A.Present tenants or perspective purchasers who complete their purchases of land by December 31, 1995 will receive the entire WGTPP eligible payment for their respective land and FCC will, upon receipt of the payment in 1996, pay that amount to the purchaser as a reduction in the purchase price of the land as provided by the agreement of purchase and sale.

B.In 1996 FCC will pay continuing tenants a one time rebate for their 1995 lease payment based upon a ratio of the WGTPP payment to the value of the respective land being leased.

Our comments

As an overall comment, it is the Income Tax Act (the "Act") rather than the WGTP Act which taxes the payments in question. Section 4 of the WGTP Act adequately describes the amounts using similar wording found in paragraph 12(1)(x) of the Act and it is that provision, along with

sections 9 and 28 of the Act, which deal with the tax treatment of these WGTPP payments.

The payments described in paragraphs 4(a) and 4(b) of the WGTP Act fall within the ambit of paragraph 12(1)(x) of the Act. Sections 9 and/or 28 of the Act would apply to a payment described in paragraph 4(c) of the WGTP Act as an amount that is required to be included in computing business income to someone leasing the farm land.

Since the lands in situation A will have already been sold by FCC, WGTPP payments would be treated as income when received and FCC would be entitled to an offsetting expense for amounts paid in accordance with the purchase and sale agreement to the purchaser as a reduction in the selling price of the land. The purchaser would reduce the purchase price by the amount of the payment received from FCC in accordance with the terms of the purchase and sale agreement. Since the payment will have been made in accordance with the purchase and sale agreement rather than pursuant to an equitable arrangement referred to in paragraph 6(c) of the WGTP Act, the payment will not be required to be reported in computing the income of the purchaser.

In situation B, the WGTPP payments received by FCC in respect of lands still owned up to the time of payment, to the extent that they are not passed on to the respective tenant, would generally reduce the cost of the land held for sale in accordance with the provisions of paragraph 4(b) of the WGTP Act. The rebate payment to the tenant falls within the purview of sections 9 and/or 28 of the Act having been described within paragraph 4(c) of the WGTP Act as an amount required to be included in computing the income from a business.

Should WGTPP payments be received by FCC after the respective lands have been sold and the purchase and sale agreement not provide for a rebate of a portion of the purchase price relating to the WGTPP payment, the entire amount would be taken into income as such a payment falls within the ambit of paragraph 12(1)(x) of the Act. The inclusion under paragraph 12(1)(x) would occur, should it not be excluded therefrom by virtue of subparagraphs 12(1)(x)(v), (vi) or (vii), in the event that there are no related costs or outlays against which to apply the payments or because the amounts in question, for some reason, do not fall within the purview of sections 9 and /or 28 of the Act.

As discussed in our recent telephone conversation (Frass/Brake), you would prefer to review our reply before deciding whether you wish to raise any specific questions with our GST Directorate.

We trust our 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

c.c. Cindy Jenkins, Regina Tax Services Office