30 November 1995 Ruling 9625113 - TRANSFER OF FARM PROPERTY

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.

XXXXXXXXXX							3-962511
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX 1996

Dear Sir:

Re: XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of the above taxpayers.

We understand that to the best of your knowledge and that of the taxpayers involved, none of the issues involved in the requested rulings are being considered by a Taxation Services Office or a Taxation Centre in connection with an income tax return already filed, or is under objection or appeal.

I. DEFINITIONS

In this letter unless otherwise expressly stated:

(a)"Act" means the Income Tax Act, R.S.C. 1985 c.1 (5th Supp.) as amended to the date hereof, and unless otherwise stated every reference herein to a part, section, subsection, paragraph or subparagraph is a reference to the relevant provisions of the Act;

(b)"adjusted cost base" has the meaning assigned by section 54;

(c)"agreed amount" in respect of a property means the amount that the transferor and the transferee of the property agree upon in their election filed under section 85 in respect of the property;

(d)"ITAR" means the Income Tax Application Rules;

(e)"preferred share" has the meaning assigned by subsection 248(1);

(f) "Proposed Transactions" means the transactions described in Paragraphs 11 to 13.

(g)"qualified farm property" has the meaning assigned by subsection 110.6(1);

and

(h)"taxable Canadian corporation" has the meaning assigned by subsection 89(1).

II. FACTS

In XXXXXXXXXX acquired, as joint tenants, a piece of farmland totalling approximately XXXXXXXXXX (the "Original Farm").

XXXXXXXXXX

XXXXXXXXXX

XXXXXXXXXX have both carried on a farming business continuously on the Original Farm, including a portion of XXXXXXXXXX, from XXXXXXXXXX to the present, and during that time have both been actively engaged in that business on a regular and continuous basis. During at least XXXXXXXXXX years while XXXXXXXXXX owned the Original Farm, their only source of income was from the farming business that they conducted on the Original Farm.

In XXXXXXXXXX began operating a small XXXXXXXXXX business on a portion of the Original Farm, now a portion of XXXXXXXXXX now carries on that business himself. The rest of the Original Farm, including the rest of Parcel XXXXXXXXXX, continued to be used in the farming business carried on by XXXXXXXXXX Since XXXXXXXXXX the portion of XXXXXXXXXX not used in the XXXXXXXXXX business has remained vacant.

Using the current boundaries of Parcel XXXXXXXXXX as a guide, the following table shows the proportion of Parcel XXXXXXXXXX used in XXXXXXXXXX farming operations, as compared to the proportion of Parcel XXXXXXXXXX used in XXXXXXXXXX business:

XXXXXXXXXX

XXXXXXXXXX are residents of Canada for the purposes of the Act. XXXXXXXXXX are over the age of 18.

XXXXXXXXXX have not entered into any arrangements with third parties to sell XXXXXXXXXX

Neither XXXXXXXXXX have made an election under subsection 26(7) of the ITAR.

Neither XXXXXXXXXX have made an election under subsection 110.6(19) in respect of XXXXXXXXXX

Holdco was incorporated on XXXXXXXXXX under the XXXXXXXXXX Company Act. Its authorized capital consists of XXXXXXXXXX shares divided into XXXXXXXXXX common shares without par value and XXXXXXXXXX preferred shares with a par value of $XXXXXXXXXX each. There are XXXXXXXXXX common shares issued, of which XXXXXXXXXX common shares are issued to XXXXXXXXXX and XXXXXXXXXX common shares are issued to XXXXXXXXXX The common shares were subscribed for at $XXXXXXXXXX per share. Apart from the initial subscription proceeds Holdco has no assets.

III. PROPOSED TRANSACTIONS

11.XXXXXXXXXX will transfer legal and beneficial ownership of XXXXXXXXXX to XXXXXXXXXX jointly by way of gift.

12.XXXXXXXXXX will sell XXXXXXXXXX to Holdco. Holdco is a taxable Canadian corporation. XXXXXXXXXX and Holdco, and XXXXXXXXXX and Holdco, will jointly elect, within the time and in the manner prescribed by subsection 85(6), to effect the transfer of XXXXXXXXXX under section 85 at an agreed amount equal to the adjusted cost base of their respective interests in XXXXXXXXXX, plus an amount equal to that which can be sheltered by their respective remaining lifetime capital gains exemptions for qualified farm property, up to the fair market value of XXXXXXXXXX.

13.As consideration for XXXXXXXXXX, Holdco will issue a non-interest-bearing promissory note to each of XXXXXXXXXX having a principal amount equal to the agreed amount, and will issue redeemable retractable preferred shares in its capital stock to each of XXXXXXXXXX having a redemption amount and fair market value equal to the difference between the fair market value of XXXXXXXXXX and the principal amount of the promissory note.

IV. PURPOSE OF THE PROPOSED TRANSACTIONS

To provide assistance to XXXXXXXXXX and to allow them to crystallize the accrued gain on XXXXXXXXXX to facilitate their future estate planning.

V. RULINGS REQUESTED

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions and the purposes of the Proposed Transactions, we confirm the following:

A.The provisions of subsection 73(3) will apply to the gift of XXXXXXXXXX by XXXXXXXXXX such that their proceeds of disposition of XXXXXXXXXX will be deemed by paragraph 73(3)(b) to be equal to their adjusted cost base of XXXXXXXXXX

B.The provisions of section 69 will not, by virtue of paragraph 73(3)(c), apply to determine the proceeds of disposition of XXXXXXXXXX to XXXXXXXXXX

C.By virtue of subsections 26(5) and 26(19) of the ITAR, the cost of XXXXXXXXXX to XXXXXXXXXX will be determined under subsection 26(3) of the ITAR and not paragraph 73(3)(d).

D.XXXXXXXXXX will be qualified farm property to XXXXXXXXXX.

E.The provisions of subsection 85(1) will apply to the transfer by XXXXXXXXXX of XXXXXXXXXX to Holdco such that their proceeds of disposition of XXXXXXXXXX will be deemed by paragraph 85(1)(a) to be equal to the elected amount in respect of the transfer.

F.By virtue of subsections 26(5) and 26(5.2) of the ITAR, the cost of XXXXXXXXXX to Holdco will be determined under subsection 26(3) of the ITAR and not paragraph 85(1)(a).

G.Subsection 75.1(1) will not apply to attribute the gain realized on the disposition of XXXXXXXXXX from XXXXXXXXXX to XXXXXXXXXX.

H.Subsection 245(2) will not apply as a result of the proposed transactions, in and by themselves, to redetermine the tax consequences confirmed in the rulings requested.

Comments

These rulings should not be interpreted as confirming that a farming business has been carried on at anytime, as this is a question of fact the determination of which is not covered by this ruling.

These rulings are given subject to the general limitations and qualifications set out in Information Circular 70-6R2 dated September 28, 1990 and are binding on Revenue Canada provided that the Proposed Transactions are completed by XXXXXXXXXX These rulings are based on the Act in it present form and do not take into account any proposed amendments.

Yours truly,

for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch