18 December 1997 External T.I. 9718465 - FARMING - WOODLOT, GREENHOUSE

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.

									971846
XXXXXXXXXX							B. Kerr

Attention: XXXXXXXXXX

December 18, 1997

Dear Sirs:

Re: Definition of Farming

This is in response to your letter of July 7, 1997 concerning the definition of farming. You state that your business includes the leasing of tractors that are expected to be used in the business of farming. Since you are the owner of the tractors, you are of the view that you qualify for the investment tax credit. You describe two situations and request our views on whether the operations would be considered to be “farming”.

In the first situation, you describe a business involving the harvesting of trees. The operator would buy standing trees, cut them and sell them to a sawmill. He might do the cutting for a fee rather than as a purchase and re-sale.

You refer to the second situation as a greenhouse operation where the operator would grow bedding stock in a greenhouse for later sale, or in some cases for later field planting. The products produced would include foodstuffs, such as grain or vegetables, and landscaping items such as trees, shrubs, or flowers.

Our Comments

The determination of what constitutes a farming business is a question of fact that can only be determined after a review of all the relevant facts. Questions of fact of this nature are usually resolved by officers of a local tax services office who are generally in a better position to appreciate all the circumstances of a particular case. The following general comments may, however, be of assistance to you.

The term “farming” is defined in subsection 248(1) of the Income Tax Act to include the various activities of a person who is engaged in the business of earning income from the tillage of soil, the raising or exhibiting of livestock, the maintenance of horses for racing or exhibiting, the raising of poultry, the keeping of bees, fur farming, dairy farming, and fruit growing. The definition is not exclusive and it has been decided by the courts that farming also includes tree farming. In certain factual circumstances, it is considered that farming includes the operation of nurseries and greenhouses. The cultivation of crops in water and hydroponics are also considered farming activities.

As regards the first situation described above, as stated in paragraph 9(b) of Interpretation Bulletin IT-433R, although, strictly speaking, an established woodlot operation is a logging business, where it is combined with a farming business, the combined operation will be viewed as a farming business if the taxpayer elects to report such business income under the cash method. However, a taxpayer engaged in the business of logging would not be considered to be a farmer. In addition, as stated in paragraph 7 of Interpretation Bulletin IT-373R, a taxpayer who is not otherwise engaged in a lumbering or logging business and who undertakes the reforestation of an area of land with the objective of producing mature trees at a date that may be 40 or 50 years in the future, or even longer, is considered to be farming.

Given the limited information provided, we cannot determine conclusively whether the taxpayer in the first situation would be considered to be engaged in the business of farming. However, as farming generally involves the growing of natural elements until their maturity, the harvesting of these elements and their commercialization, and since the taxpayer will not be growing trees, it is unlikely that the operation would be considered to be a farming business.

With respect to the second situation described, as indicated above, the operation of a greenhouse may be considered to be farming.

We trust that these comments will be of assistance.

Yours truly,

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