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 properties are used principally in an active business. Certain properties do not meet the 50% requirement, but 57% of total acreage is used in a farming business, does this mean all of the acreage is considered used principally in active business.
Position:
No.
Reasons:
When determining whether assets will meet the 50% or more requirement, the test has to be applied on a property by property basis.
5-971615
XXXXXXXXXX Karen Power, C.A.
Attention: XXXXXXXXXX
March 10, 1998
Dear Sirs:
Re: Assets used principally in an active business
We are writing in response to your letter of April 16, 1997 wherein you requested our views on whether land owned by a taxpayer, is considered to be used principally in an active business for purposes of the definitions of "small business corporation" and "qualified small business corporation share" in subsection 248(1) and 110.6(1) respectively of the Income Tax Act (the "Act"). We apologize for the delay in replying.
You have provided us with the following set of facts:
A company has acquired properties over a period of several years to the point where the company has XXXXXXXXXX acres of land. Of that acreage, XXXXXXXXXX is cultivated land, approximately 57% of the total acreage.
A summary of the various properties acreage is as follows:
Property Total Cultivated Other
XXXXXXXXXX
The term cultivated means actively farmed property - planted and harvested each year.
The company is a CCPC and the shares are owned by Canadian residents.
The other acreage may be used for wood lot, may have brush on it, or is simply not actively farmed.
The properties have been owned by the company for at least two years.
It is your view, that since 57% of the total acreage is cultivated, all of the acreage would be considered used principally in an active business.
The particular circumstances in your letter on which you have asked for our views appears to be a factual situation involving a specific taxpayer. As explained in Information Circular 70-6R3, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate district taxation office for their views. However, we are prepared to offer the following comments which may be of some assistance to you.
The definition of a small business corporation as set out in subsection 248(1) of the Act reads in part,
"all or substantially all of the fair market value of the assets of which at that time is attributable to assets that are
(a) used principally in an active business carried on primarily in Canada...".
The determination of whether real property is used principally by a taxpayer in carrying on a farming business is a question of fact. Where reference is made to an asset being used "principally" in the business of farming, the asset will meet this requirement if more than 50% of the asset's use is in the business of farming. Furthermore, it is also a question of fact whether a particular farming operation constitutes a farming business at any particular time. Some of the criteria which should be considered in making this determination are set out in Interpretation Bulletin IT-322R. In addition, the Department's general position with respect to the meaning of a farming business is outlined in paragraph 8 of Interpretation Bulletin IT-433R and paragraph 9 of Interpretation Bulletin IT-145R.
In our view, when determining whether assets will meet the 50% or more requirement, the test has to be applied on a property by property basis. Therefore, in your situation, each separate property, will have to meet the test on its own. The Department's view would not change if the properties were used in different farming activities.
We trust our comments will be of assistance to you.
Yours truly,
Roberta Albert, C.A.
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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