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 nursery and finishing stage of the production of hogs is farming where a) gain is an average of 25 Kg at the nursery stage and 85 kilograms at the finishing stage and b) producer is guaranteed to receive a minimum amount monthly.
Position:
Yes
Reasons:
A person raises livestock when there is an appreciable contribution to the growth and maturity of the livestock. Livestock includes hogs. a) where the weight goes from 5 kg to 30 kg, or from 30 kg to 115 kg, there is an appreciable contribution to the growth and maturity of the livestock; and b) the minimum monthly payment guaranteed does not change the fact that the producer takes care of the animals and contributes significantly to their growth.
980083
XXXXXXXXXX N. Mondou, M.Fisc.
Attention: XXXXXXXXXX
March 16, 1998
Dear Sir:
Re: Definition of farming
This is in reply to your letter dated January 8, 1998, in which you requested our views as to whether the operation of a nursery in the hog industry qualify as "farming" under the Income Tax Act (the "Act").
You indicated in your letter that the nursery stage in the production of hogs requires an individual producer to build a barn to the hog supplier's specifications and to follow certain procedures. In return, the producer receives a fixed supply contract. This contract will involve a fixed price per hog shipped plus incentive bonuses for efficiency in feed used, etc. In some cases, there is a minimum guaranteed monthly payment irrespective of the amount of hogs shipped.
You also indicated that in the nursery barns, the hogs are held for 56 days and gain an average 25 kilograms. In the finishing barns, the hogs would be held for 100 days and gain an average 85 kilograms.
For the purpose of this letter, we assumed that the producer is not an employee or agent of the hog supplier.
The situation outlined in your letter involves an actual fact situation. To the extent that it relates to a past transaction you should contact the appropriate tax services office, since the review of such transactions falls within their responsibility. If it relates to a proposed transaction, assurance as to the tax consequences of actual proposed transactions will only be given in the context of an advance income tax ruling. The procedures for requesting an advance income tax ruling are outlined in Information Circular 70-6R3 dated December 30, 1996, issued by Revenue Canada. However, we offer the following general comments.
"Farming" as defined in subsection 248(1) of the Act includes livestock raising. In the case of Scharf's Cattle Co. Ltd. v. MNR, 71 DTC, the Tax Appeal Board decided that a person was raising livestock when he or she made an appreciable contribution to the raising of the animals. On the other hand, taking care of mature animals for a short period of time is not farming as stated in Byers v. MNR, 67 DTC 690.
The producer in the circumstances you described provides the facilities to the owner of the hogs and the feeding and other required care to the animals with the objective of gaining profit from the increased weight of the animal. Because of his or her services, the hog's average weight increases from 5 kilograms to 30 kilograms in the nursery stage, i.e. a gain of 25 kilograms, and from 30 kilograms to 115 kilograms in the finishing stage, i.e. a gain of 85 kilograms. The producer makes, in both stages, an appreciable contribution to the growth and maturity of the animals, and in our view, his or her operations constitute "livestock raising" and qualify as "farming".
The fact that the producer may be entitled to receive a guaranteed minimum monthly payment does not affect this position as long as the producer makes an appreciable contribution to the growth and maturity of the animals.
We trust that these comments are of assistance but caution you that they do not constitute an advance income tax ruling and, accordingly, are not binding on the Department with respect to any particular transactions.
Yours truly,
P. Spice
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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