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, where all of the assets of a family farm corporation have been sold and converted to cash, the shares of the corporation continue to qualify as "shares of the capital stock of a family farm corporation" within the meaning of subsection 70(10) of the Act.
Position:
Shares no longer qualify as such.
Reasons:
A "share of the capital stock of a family farm corporation" of a person at a particular time means a share of the capital stock of a corporation owned by the person at that time where, at that time, all or substantially all of the fair market value of the property owned by the corporation was attributable to property that has been used principally in the course of carrying on the business of farming in Canada, in which the person or a related family member of the person was actively engaged on a regular and continuous basis.
Cash is not considered to be an asset used in the course of carrying on the business of farming, unless it is temporarily surplus to the needs of the farming business.
5-961752
XXXXXXXXXX C. Chouinard
Attention: XXXXXXXXXX
June 24, 1996
Dear Sir/Madam:
Re: Share of the Capital Stock of a Family Farm Corporation Subsection 70(10) of the Income Tax Act
We are writing in reply to your letter of May 10, 1996, wherein you requested our comments regarding the definition of "share of the capital stock of a family farm corporation" in subsection 70(10) of the Income Tax Act (the "Act").
In the situation you describe, a corporation whose assets were all used in the course of carrying on the business of farming were sold, such that the corporation's only asset at the present time is cash. You inquire whether, in these circumstances, the shares of the corporation would qualify as "shares of the capital stock of a family farm corporation". In your view, all of the fair market value of the assets of the corporation (i.e., the cash) would be attributable to assets that the corporation has used exclusively in carrying on the business of farming.
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.
As indicated in paragraph 17 of Interpretation Bulletin IT-268R4, a "share of the capital stock of a family farm corporation" of a person at a particular time means a share of the capital stock of a corporation owned by the person at that time where, at that time, all or substantially all of the fair market value of the property owned by the corporation was attributable to property that has been used principally in the course of carrying on the business of farming in Canada, in which the person or a related family member of the person was actively engaged on a regular and continuous basis.
In our view, in the situation described above, the shares of the corporation would not qualify as "shares of the capital stock of a family farm corporation", since, at that time, being the present time, all of the fair market value of the property owned by the corporation was attributable to cash, which is not considered to be an asset used principally in the course of carrying on the business of farming, unless the cash is temporarily surplus to the needs of the farming business.
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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