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 paragraph 28(1)(c) will apply where an individual receives proceeds from the disposition of eligible capital property which exceed the total of his farming loss and his inventory purchases on hand at the end of the year.
Position:
Paragraph 28(1)(c) will not apply.
Reasons:
The individual would not be considered to have a loss from the business.
5-960434
XXXXXXXXXX C. Chouinard
Attention: XXXXXXXXXX
April 29, 1996
Dear XXXXXXXXXX:
Re: Paragraph 28(1)(c) of the Income Tax Act
We are writing in reply to your letter of January 26, 1996, wherein you requested our comments regarding the application of paragraph 28(1)(c) of the Income Tax Act (the "Act") where an individual has disposed of eligible capital property during the year.
In the situation you describe, the individual, a full-time farmer, disposes of eligible capital property during the year. The individual has in previous years claimed all of his $500,000 capital gains exemption. If the proceeds from the sale of the eligible capital property and the inventory on hand at the end of the year are ignored, the individual has a farming loss for the year. The taxable portion of the proceeds from the sale of the eligible capital property exceed the total of the farming loss and the inventory purchases on hand at the end of the year. You inquire whether the mandatory inventory adjustment rules of paragraph 28(1)(c) of the Act would apply. In your view, these rules would not apply, since the individual will not have a loss from the business as a result of the inclusion in income of the taxable portion of the proceeds from the sale of the eligible capital property.
In a situation such as that described, we would agree with your analysis. The mandatory inventory adjustment under paragraph 28(1)(c) of the Act only applies in a loss year and as a result of the income generated by the sale of the eligible capital property, the individual would not incur any loss in the year. Consequently, the provisions of paragraph 28(1)(c) of the Act would not apply.
These comments represent our general view and do not constitute an advance income tax ruling. Therefore, as described in paragraph 21 of Information Circular 70-6R2, they are not binding on the Department.
We trust that these comments will be of assistance.
Yours truly,
R. Albert
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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