29 January 1996 External T.I. 9601575 - WESTERN GRAIN

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.

Agriculture and
Agri-Food Canada - WGTPP
Box 4046 960157
Regina, Sakatchewan A.M. Brake
S4P 3R9

Attention: Darren Oremba

January 29, 1996

Dear Sirs:

Re: Western Grain Transition Payments ("WGTPP")

This is in reply to your letter of January 8, 1996, wherein you asked what effect payments made to a landowner under WGTPP would have on a) UIC benefits, b) Workers Compensation Benefits and c) Old Age Supplement, on the basis that the land is not sold at the end of 1996. Also, you asked for our comments on a situation where Farmer A sold land to Farmer B in June 1995 and there was agreement that the A would pass on to B the WGTPP payment when A received it in 1996.

Our Comments

Revenue Canada is responsible for administration of the Income Tax Act (the "Act") so we will comment on the treatment of WGTP payments for purposes of the Act. Your queries concerning the effects of WGTP payments on payments under other acts or programs should be addressed to the responsible departments or boards. To the extent that these other payments may be based on the treatment of WGTP payments under the Act, our comments may be of assistance.

In a normal situation the landowner who farms his own land will make application for the payment on the appropriate application forms, following the instructions provided by Agriculture and Agri-Food Canada. The adjusted cost base (the "ACB") of the land will be required to be reduced by the amount of the payment received.

In a subsequent year when the sale of the land takes place, the reduction in the ACB of the land resulting from the receipt of the payment in 1996 could give rise to increased capital gains in the year of sale. The actual receipt of the payment in 1996 would not, in and by itself, give rise to income.

In a situation where the land is farmed by a lessee, the applicant landowner must reach an equitable agreement with the lessee with respect to sharing the payment or some other mutual arrangement as a condition of payment. If it is agreed or decided that a portion of the payment is to be given to the lessee by the landowner upon receipt of the payment, that portion will be income to the lessee and will not be considered to have been a transition payment to the landowner. The actual receipt of that portion of the payment passed on to the lessee and the payment, itself, to the lessee will not affect the landowner's income. However, the payment would constitute business income to the lessee.

With regard to the farmland that was acquired in 1995 for an agreed price and the purchase and sale agreement provided that the WGTPP payment would be passed on by the vendor, the purchaser should reduce the purchase price of the land in accordance with the purchase and sale agreement. Since the payment to the purchaser B 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.

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