26 January 1998 External T.I. 9715655 - SHARES OF A FAMILY FARM CORPORATION

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 shares and indebtedness of a corporation qualify as a family farm corporation. Whether two corporations are related.

Position:

Question of fact. Gave general guidelines on family farm corporation. The corporations are related.

Reasons:

Based on facts in example in letter.

971565
XXXXXXXXXX M.P. Baldwin

Attention: XXXXXXXXXX

January 26, 1998

Dear Sirs:

Re: Shares of a Family Farm Corporation

This is in reply to your letter of May 14, 1997, to the Ottawa Tax Services Office which was forwarded to our office for reply, and your facsimile of September 30, 1997 and various phone conversations requesting assistance in determining whether the shares of a particular corporation would be considered shares of a family farm corporation as defined in subsection 70(10) of the Income Tax Act (the "Act").

The situation described in your letter appears to be an actual fact situation and as noted in paragraph 22 of Information Circular 70-6R3, when a request for technical interpretation relates to a specific proposed transaction, an advance income tax ruling rather than a technical interpretation must be requested. As discussed in our telephone conversation (Baldwin/XXXXXXXXXX) of September 18, 1997 the determination of whether the shares of a particular corporation, owned by a particular taxpayer, are shares of the capital stock of a family farm corporation within the meaning of that term as defined in subsection 70(10) of the Act is a question of fact which can only be determined from an examination of all the facts. Consequently, we can only offer the following general comments.

A share of the capital stock of a family farm corporation of a person at a particular time is defined in subsection 70(10) of the Act to mean 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:

(a)property that has been used by

(i) the corporation,

(ii) another family farm corporation in which the person or related family member of the person was a shareholder,

(iii) the person,

(iv) a related family member of the person, or

(v) a partnership, an interest in which was an interest in a family farm partnership of the person or of a related family member of the person,

principally in the course of carrying on the business of farming in Canada in which the person or related family member of the person was actively engaged on a regular and continuous basis;

(b)shares of the capital stock or indebtedness of one or more corporations all or substantially all of the fair market value of the property of which was attributable to property described in (c) below; or

(c)properties described in (a) and (b) above.

It is a question of fact as to whether all or substantially all of the fair market value of a family farm corporation's assets are attributable to property described in (a), (b) or (c) above. With respect to (b) above "indebtedness of one or more corporations" include debt obligations issued by other corporations that meet the property requirement described above.

Whether two corporations would be related is a question of fact that can only be determined after examination of the details of the corporations. Pursuant to subsection 252(2) of the Act, a brother includes a brother of the taxpayer's spouse.

"Related persons" is defined in subsection 251(2) of the Act and pursuant to (a) of the definition two persons are related when connected by blood relationship, marriage or adoption; pursuant to (b) of the definition persons related to each other include a corporation and (ii) a person who is a member of a related group that controls the corporation. Therefore based on the example contained in your letter, in our opinion Company B is controlled by a related group being daughter, daughter's husband and the brother of daughter's husband.

Pursuant to 251(2)(b)(iii) of the Act a related person is any person related to a person described in subparagraph (i) or (ii)..... Therefore by extension based on the example in your letter in our opinion Company A would be related to Company B.

While we trust that the above comments will be of assistance, we caution you that they do not constitute an advance income ruling and are, accordingly, not binding upon the Department with respect to any particular transaction.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch