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 farmland (owned by a father) used in the business of farming by a partnership, in which the father was an inactive partner but in which a son was also a partner actively engaged in the partnership business, is a qualified farm property.
Position:
Father's farmland qualifies as a "qualified farm property".
Reasons:
The son's partnership interest qualifies as an "interest in a family farm partnership" as he was a partner actively engaged on a regular and continuous basis in the partnership's farming business and, therefore, the farmland qualifies as a "qualified farm property" with respect to the property having been used in the business of farming for the qualifying period by a person specified within the definition contained in 110.6(1) of the Act. (So it is the son's partnership interest and activities, and not the father's, which satisfies the requirements of s.110.6(1)(a)(vi)(B) so that the property owned by the father and used by the qualifying partnership is "qualified farm property" of the father). The requirements of s.110.6(1)(a)(vii)(B) are not met because the partnership was not a family farm partnership for a five year period.
XXXXXXXXXX 963291
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1997
Dear Sirs:
Re: Advance Income Tax Ruling Request,
XXXXXXXXXX
This is in reply to your letters of XXXXXXXXXX, requesting an advance income tax ruling on behalf of yourself.
We understand that, to the best of your knowledge, none of the issues raised in this ruling is being considered by a Taxation Services Office or Taxation Centre in connection with an income tax return already filed, is the subject of any notice of objection or is under appeal.
Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:
Facts
1.You became a resident of Canada on XXXXXXXXXX.
2.On XXXXXXXXXX you became the sole owner of lands described as follows:
1)Section XXXXXXXXXX.
2)Section XXXXXXXXXX.
3)Section XXXXXXXXXX.
3.During the period XXXXXXXXXX, your farmland was rented to a partnership comprising of yourself, XXXXXXXXXX ("Mr. B") and XXXXXXXXXX ("Mr. B's Son"). Within the partnership, Mr. B's Son was the only partner actively engaged in the partnership's farming operation on a regular and continuous basis. During this period, Mr. B also rented farmland to this partnership.
4.During the period XXXXXXXXXX (3 years), XXXXXXXXXX ("Your Son"), joined the farming partnership. This partnership continued to rent the farmlands from Mr. B and yourself. This farming operation consisted of approximately XXXXXXXXXX. The operation was large enough to require the involvement of two people on a full-time basis. During this period Your Son and Mr. B's Son, residents of Canada, were the only partners actively engaged in the partnership's farming operation on a regular and continuous basis.
5.The relevant financial statements of the partnership show Your Son's share of net income (loss) for the three years of the partnership to be as follows:
YEAR ENDED XXXXXXXXXX
Gross farm income of
farm partnership XXXXXXXXXX
Net income(loss) of
farm partnership XXXXXXXXXX
Your Son's share of net income
(loss) of farm partnership XXXXXXXXXX
6.During the period XXXXXXXXXX, all or substantially all of the fair market value of the assets of the partnership consisted of farm machinery, farm equipment and farm buildings that were used principally in the course of carrying on the partnership's farming activities.
7.The farming partnership of yourself, Mr. B, Mr. B's Son and Your Son was dissolved on XXXXXXXXXX.
8.Since the dissolution of the farm partnership, you have rented your farmland to unrelated individuals (for the period commencing XXXXXXXXXX to date).
9.Relevant documentation included the following:
a)Partnership agreement between yourself, Mr. B. and Mr. B's Son, dated XXXXXXXXXX;
b)Signed agreement between Mr. B and yourself dated XXXXXXXXXX, wherein it was confirmed that Your Son would become an active participant in the farming partnership upon completion of his agricultural education in XXXXXXXXXX;
c)Copy of partnership agreement between yourself, Mr. B, Mr. B's Son and Your Son, replacing the original partnership agreement; and
d)Financial statements for the above partnership for the fiscal periods ending XXXXXXXXXX.
Proposed Transaction
10.You are transferring the described farmlands to Your Son.
Purposes of the Proposed Transaction
11.You intend to claim the enhanced capital gains exemption pursuant to subsection 110.6(2) of the Act in respect of the sale of qualified farm property as defined in subsection 110.6(1) of the Act.
12.The purpose of the proposed transaction is to transfer ownership of the farmland from you to Your Son.
Ruling Given
Provided that the partnership was a partnership in law and that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions, and purpose of the proposed transactions and provided further that the proposed transaction is carried out as described above, our ruling is as follows:
We confirm that your farmland used in the business of farming by the partnership, in which Your Son was a partner actively engaged in the partnership's farming business on a regular and continuous basis, is qualified farm property for purposes of the enhanced capital gains exemption.
Nothing in this advance income tax ruling should be construed as implying that we are ruling on whether the partnership carried on a farming business at any particular time nor that Your Son was a partner actively engaged in the partnership's farming business operation on a regular and continuous basis during the qualifying period. Neither are we confirming that each and every parcel of the farmland being transferred was used primarily for the purpose of farming by the partnership. These are given facts and our ruling is given on the basis that all the facts are correct.
This ruling is subject to the limitations and qualifications set out in Information Circular 70-6R3 dated December 31, 1996 and is binding on the Department provided that the transfer of the farmland is made before XXXXXXXXXX.
Yours truly,
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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