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 farm land qualifies as "qualified farm property".
Position:
May qualify if the taxpayer, her spouse or her children used the property principally in the course of carrying on the business of farming for a period of five years prior to the spouse's death.
Reasons:
Property acquired before June 18, 1987 will qualify as "qualified farm property" provided it was used by the person claiming the capital gains exemption, a spouse, child or parent of such a person, a family farm corporation in which any of the above persons own shares, a family farm partnership in which any of the above persons have an interest or a personal trust from which the person acquired the property, principally in carrying on the business of farming in Canada, either in the year the property is disposed of, or in at least five years during which it was owned by the person, a spouse, child or parent of the person, a personal trust from which the person acquired the property or a family farm partnership.
5-961497
XXXXXXXXXX C. Chouinard
June 25, 1996
Dear XXXXXXXXXX:
Re: Qualified Farm Property
We are writing in reply to your letter of April 16, 1996, wherein you inquired whether property you own would qualify as "qualified farm property" for the purposes of claiming the capital gains exemption.
You indicate that you own farm land jointly with your daughter and son. The land has been rented since your first husband died in 1955 and you receive 1/3 of the crops. You have not provided any information in respect of the rental arrangement.
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R2. The following comments are, therefore, of a general nature only, and are not binding on the Department.
One of the conditions that must be met 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 be used in the course of carrying on the business of farming in Canada. Property acquired before June 18, 1987 will qualify as "qualified farm property" provided it was used by the person claiming the capital gains exemption, a spouse, child or parent of such a person, a family farm corporation in which any of the above persons own shares, a family farm partnership in which any of the above persons have an interest or a personal trust from which the person acquired the property, principally in the course of carrying on the business of farming in Canada, either in the year the property is disposed of, or in at least five years during which it was owned by the person, a spouse, child or parent of the person, a personal trust from which the person acquired the property or a family farm partnership.
The determination of whether real property is used principally by a taxpayer in carrying on a farming business is a question of fact. Where reference is made to an asset being used "principally" in the business of farming, the asset will meet this test where its use is primarily in the business of farming, that is, more than 50% of the asset's use must be in the business of farming. You should note, however, that renting farm land is not considered to be a farming activity.
Since it is not clear from your letter whether your first husband, yourself or your children have ever actively farmed the property, we cannot determine conclusively whether the farm land would qualify as "qualified farm property". However, since the property appears to have been acquired prior to June 18, 1987, if it was used by any of the aforementioned persons principally in the course of carrying on the business of farming in at least five years during which the property was owned by either your first husband, yourself or your children, it would qualify as "qualified farm property" and hence, be eligible for the $500,000 capital gains exemption.
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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