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 disposition of a restrictive covenant considered disposition of Real Property for purposes of the definition of "qualified farm property" in subsection 110.6(1).
POSITION:
NO.
REASONS:
It is our understanding that in common law a restrictive covenant is considered an equitable interest in the land and therefore, it would not be considered real property.
960999 XXXXXXXXXX Wm. P. Guglich
Attention: XXXXXXXXXX
September 26, 1996
Dear Sir/Madam:
Re: Qualified Farm Property - Restrictive Covenant
We are writing in reply to your letter of February 26, 1996 in which you inquired whether a disposition of a restrictive covenant would be considered a disposition of real property for purposes of the definition of "qualified farm property" in subsection 110.6(1) of the Income Tax Act (the "Act").
The restrictive covenant would restrict any subdivision or development of the land but allow continued use of the land as agricultural property.
OUR VIEWS
The determination of whether a restrictive covenant would be considered real property would be made pursuant to the relevant statutory provisions and case law. It is our understanding that in common law a restrictive covenant would not be considered real property.
In any event, we also note that one of the conditions, inter alia, that must be met in order for a property to be considered a "qualified farm property" within the meaning of subsection 110.6(1) of the Act, is that the property must be used in the course of carrying on the business of farming in Canada. In our view it's unlikely that a restrictive covenant, which is a promise by the land owner not to subdivide or develop the land, could be considered to have been used in the business of farming.
We trust that our 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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