24 January 1996 External T.I. 9602275 - WESTERN GRAIN 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.

Human Resources Development Canada
Policy Interpretations Division
9th Floor, Tower B, Place De Ville 960227
Ottawa, Ontario A.M. Brake
K1A 0L1

Attention: Bob Rees, Policy Analyst

January 24, 1996

Dear sirs:

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

This is in reply to your letter of December 22, 1995 relating to payments under the above-noted program to landowners in relation to the Guaranteed Income Supplement ("GIS") to the Old Age Security Pension. You have requested our comments on how WGTP payments to landowners are to be treated for purposes of the Income Tax Act as, in order to determine eligibility for the GIS, your Act states: "the income for a calendar year of a person or an applicant is the income of that person or applicant for that year computed in accordance with the Income Tax Act".

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 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, accordingly, will be considered not to have been a transition payment to the landowner.

The actual receipt of a transition payment by a landowner will not give rise to income at the time it is received. However, as the ACB of the property has been reduced, an increased capital gain could result in the year in which the farm is sold.

In situations where landowners hold farmlands as inventory for resale, the transition payment will be applied to reduce the cost of the lands held for sale. The receipt, in and by itself, should not give rise to income but could increase the profit from the sale of land in the year of sale.

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