26 September 1996 Income Tax Severed Letter 9625035 - Transfer of farm property to child

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 consideration must be paid when farm property is transferred to a child under 73(3)

POSITION:

if farmer wishes to utilize his/her unused capital gains deduction then yes

REASONS:

see para 2 of IT-268R4

962503 XXXXXXXXXX Sandra Short

Attention: XXXXXXXXXX

September 26, 1996

Dear Sirs:

Re: Transfer of Farm property to child

This is in reply to your letter of July 15, 1996, which asks that we consider the situation of a farmer wishing to transfer farm land to his or her child and to which subsection 73(3) of the Income Tax Act is applicable. You have queried whether a farmer may utilize a portion of his or her unused capital gains deduction, when transferring the farm land, without requiring the child to pay any consideration or only requiring the child to pay an amount which is less than the adjusted cost base of the land.

The situation outlined by you appears to be an actual fact situation. If your situation relates to a past transaction, the review of that situation is the responsibility of the Tax Services Office. If your situation is a proposed transaction, you may wish to consider requesting an advance income tax ruling, in accordance with Information Circular IC70-6R2, [Information Circular 70-6R2] and the special release attached thereto, dated September 30, 1992. However, we can provide the following general comments.

Subsection 73(3) of the Act applies when a parent, while living, transfers, to his or her child, property used in a farming business by the parent, the parent's spouse or child. The transfer may be by way of sale or a gift. If the property to be transferred is land and the actual proceeds of disposition (i.e. consideration) is any amount between the fair market value of the property and its adjusted cost base, then that amount is deemed to be the parent's proceeds of disposition and the cost of acquisition of that property to the child. While it is acceptable for the transfer to take place for no consideration (a gift), this means that the farmer cannot utilize any unused portion of the captial gains deduction. It should be noted that if the transfer takes place at an amount of actual consideration which is greater than both the fair market value of the land and its adjusted cost base, then the greater of those limits is deemed to be the parent's proceeds of disposition and the child's cost of acquisition pursuant to subparagraph 73(3)(b)(ii). If the actual consideration is nil or some amount which is less than the lesser of the fair market value and its adjusted cost base of the land, then the lesser of the fair market value and adjusted cost base is deemed to be the parent's proceeds of disposition and the child's cost of acquisition pursuant to subparagraph 73(3)(b)(iii). In this regard, please refer to paragraph 2 of Interpretation Bulletin IT- 268R4. An example of a situation which is similar to that discussed by you can be found in Case 3 of the example in paragraph 3 of this bulletin.

We trust our comments will be of assistance to you.

Yours truly, John F. Oulton for Director Business and Publications Division Income Tax Rulings and Interpretations Directorate Policy and Legislation Branch