3 March 1997 External T.I. 9636065 - farm support payments

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, payments made by FCC as an adjustment in the purchase price of land, in accordance with the purchase and sale agreement, is a farm support payment within the definition contained in section 234 of the Income Tax Regulations (the "Regulations"). Also, where FCC unilaterally decides to pass on a portion of the WGTPP payment received by them in respect of lands owned by them and leased to the tenants of the respective land, would such amounts constitute "farm support payments" within the meaning in subsection 234(2) of the Regulations?

Position:

It is questionable whether FCC, is an entity that falls within the purview of subsection 234(1) of the Regulations as it may not be an entity described therein as, "Every government, municipality or municipal or other public body (in sections 235 and 236 referred to as the "government payor") or producer organization or association...".

In any event, the purchase price adjustment as set out in the purchase and sale agreement for the land is not a farm support payment described within subsection 234(2) of the Regulations as the amount in question is paid in accordance with the purchase and sale agreement.

The payment to land tenants by FCC was made voluntarily by FCC and is not made pursuant to an equitable arrangement referred to in paragraph 6(c) of the Western Grain Transition Act. Should FCC be bound by Regulation 234, the payments in question would fall within the definition of "farm support payments" as contained in subparagraph (2)(c)(i) of Regulation 234.

Reasons:

The net purchase price was a negotiated amount set out in the purchase and sale agreement. The rental rebate fits within the wording of subparagraph (2)(c)(i) of Reg. 234.

Agri-Land Sales & Leasing
900 - 1801 Hamilton Street
Regina, Saskatchewan				963606
S4P 4L5						A.M. Brake

Attention: Tim R. Frass, CMA, CA

March 3, 1997

Dear Sirs:

Re: AGR-1's and Western Grain Transition Payments Program ("WGTPP")

This is in reply to your letter of October 23, 1996, asking us to comment on the Farm Credit Corporation's (FCC) responsibilities to file AGR-1 tax information slips relating to the WGTPP based on the following set of facts.

Facts

As a landowner, FCC is receiving payments from the WGTPP in 1996 and sharing these payments with its clients as follows:

Those clients who have completed their purchase of the land from FCC will receive the entire WGTPP eligible payment for their respective land. FCC is paying the WGTPP amount to the new purchaser in 1966 as an adjustment to the purchase price, in accordance with the purchase and sale agreement.

FCC has decided unilaterally that continuing tenants would receive from FCC a maximum of 25% of the total WGTPP amount received by FCC. The sharing formula is calculated at 12.5% of the total WGTPP amount for each of the 1995 and 1996 crop years. The sharing amounts are paid to tenants in 1996.

Our Comments

Essentially there are two determinations to be made with respect to whether AGR-1's are required as provided by section 234 of the Income Tax Regulations (the "Regulations"). First, the payor must be a body described in subsection 234(1) of that Regulation and secondly, the payment should meet the description of payments described within subsection 234(2) of that Regulation.

Section 234 of the Regulations requires information slips (AGR-1's) in respect of "farm support payments" as defined in subsection (2) of that Regulation which reads as follows:

"(1) Every government, municipality or municipal or other public body (in sections 235 and 236 referred to as the "government payor") or producer organization or association that makes a payment of an amount that is a farm support payment (other than an amount paid out of a net income stabilization account) to a person or partnership shall make an information return in respect of the amount.

(2) For purposes of subsection (1) "farm support payment" includes

(a)a payment that is computed with respect to an area of farmland;

(b) a payment that is made in respect of a unit of farm commodity grown or disposed of or a farm animal raised or disposed of; and

(c)a rebate of, or compensation for all, or a portion of

(i)a cost or capital cost incurred in respect of farming, or

(ii)unsowed or unplanted land or crops, or destroyed crops, farm animals or other farm output."

It would be a determination of fact as to whether FCC is a body described within subsection (1) of Regulation 234. If it is not such a payor, it would not be bound by the requirements of that Regulation.

In our view, the payments to land purchasers representing a reduction in the purchase price, made in accordance with the purchase and sale agreement for the land, would not be a "farm support payment" within the definition as it is considered to form a part of the negotiated price of the land.

Amounts paid tenants by FCC representing the sharing of the WGTPP amount would, in our view, fit within subparagraph (2)(c)(i) of that definition as a rebate or reduction of a cost incurred in farming and, should FCC be a body described within subsection (1) of Regulation 234, AGR-1's would be required.

We refer you to our previous letter to you dated November 7, 1995 (file #952767), wherein we commented on the tax treatment of these payments.

We trust our comments will be of assistance to you.

Yours truly,

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