27 May 1996 External T.I. 9532375 - Deferred Cash Purchase Ticket

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 loan repayment is a receipt for a cash basis farmer.

Position: Yes

Reasons:

Constructive receipt. The $18,000 off-set plus the $2,000 Deferred Cash Purchase Ticket was the consideration for the $20,000 wheat delivered. The subsection 76(4) deferral applies only to the Ticket amount and does not apply to defer anything more.

		953237
XXXXXXXXXX	A.M. Brake

Attention: XXXXXXXXXX

May 27, 1996

Dear Sirs:

Re: Deferred Cash Grain Ticket and Cash Advances

This is in reply to your letter of December 5, 1995 wherein you asked for our comments on the timing of reporting income for a cash basis farmer in the following scenario:

1.A cash basis farmer, reporting on a calender year, receives an advance of $50,000 in October 1995 for stored grain.

2.In November 1995, the farmer delivers $20,000 worth of grain to an elevator, of which $18,000 is applied against the $50,000 advance and a Deferred Cash Purchase Ticket to January 1996 was accepted for the $2,000 net balance.

You asked whether the full $20,000 or the $18,000 off-set is taxable in 1995 with the remaining $2,000 being deferred to 1996.

Our Comments

1.There is no requirement to include the advance of $50,000 in computing the 1995 income.

2.The repayment of the $18,000 is considered to be constructive receipt in that the liability for the advance was, in fact, decreased and, therefore, the $18,000 would be treated as if it were received in cash and repaid against the advance.

3.In accordance with the comments contained in paragraph 3 of Interpretation Bulletin IT-184R, subsection 76(1) of the Income Tax Act (the "Act") would require a cash basis farmer to include the $2,000 Deferred Cash Purchase Ticket (security) in computing 1995 income. However, provided the conditions as reflected in paragraph 4 of IT-184R are met, subsection 76(4) of the Act will defer the $2,000 to 1996.

The foregoing comments are given in accordance with the practice of providing opinions referred to in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990 and are not binding on Revenue Canada, Taxation.

We trust our comments will be of assistance to you.

Yours truly,

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