28 May 1998 Internal T.I. 9806457 - QUALIFIED FARM PROPERTY

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 a certain parcel of land qualifies as "qualified farm property" when it is repossessed and later re-acquired?

Position: No.

Reasons:

Paragraph 110.6(1)(a)(vi) requires a continuous period of ownership and the years the property was farmed prior to the foreclosure are not relevant.

		May 28, 1998

	XXXXXXXXXX 	HEADQUARTERS
	Client Assistance	Karen Power, C.A.
	XXXXXXXXXX  Tax Services Office	(613) 957-8953

980645

“Qualified Farm Property”

This is in reply to your correspondence of March 13, 1998, wherein you requested our comments on whether a certain parcel of land would qualify as “qualified farm property” as defined in subsection 110.6(1) of the Income Tax Act (“the Act”).

Our understanding of the facts is as follows:

1. An individual had been actively farming his land for fifty years.

2. The individual agreed to put his land up as security to assist his daughter and her husband in the purchase of their own land.

3. Farm Credit repossessed the land which had been placed as security.

4. In 1991, the daughter was able to repurchase the land her father had owned and farmed for fifty years.

5. Since the repurchase, the daughter’s brother has been farming the land on a crop-share basis.

Our Comments

Pursuant to subparagraph (a)(vi) of the definition of “qualified farm property” in subsection 110.6(1) of the Act, real property may be considered to be used in the course of carrying on the business of farming in Canada if it has been owned, by the individual, a spouse, child or parent of such a person, a family farm partnership in which any of the above persons have an interest or a personal trust from which the person acquired the property, throughout the 24 months preceding the sale. In addition, the real property must meet either of the conditions described in clauses (a)(vi)(A) or (a)(vi)(B) of the definition of "qualified farm property" in subsection 110.6(1) of the Act. Subparagraph (a)(vi)(B) of the definition of “qualified farm property” in subsection 110.6(1) of the Act will only apply when the farm land was used by a corporation or a partnership and does not appear to apply in your situation.

Under clause (a)(vi)(A) of the definition of “qualified farm property” in subsection 110.6(1) of the Act, in at least 2 years while the property was so owned by the individual, a spouse, child or parent of such a person, a family farm partnership in which any of the above persons have an interest or a personal trust from which the person acquired the property, the gross revenue from the farming business that is carried on by any of these individuals in which the property was principally used, and in which the individual is actively engaged on a regular and continuous basis, must have exceeded the individual’s income from all other sources for the year. In our opinion, the person meeting the gross revenue test need not be the person who owns the property.

Although the individual’s (the daughter’s) father had farmed the property in the past, since the period of continuous ownership of the property by the individual (the daughter) and her father was interrupted by the foreclosure, the father’s use of the property for farming prior to the foreclosure would not be relevant for purposes of clause (a)(vi)(A) of the definition of “qualified farm property” in subsection 110.6(1) of the Act.

Paragraph 9 of IT-433R “Farming or Fishing - Use of Cash Method” indicates that the crop share received by a landlord in a sharecropping arrangement is considered to be rental income and not income from farming. The reference to “sharecropping arrangement” means an arrangement where a taxpayer or landlord receives from a tenant a share of crop in lieu of rent. There may be other types of sharecrop arrangements, where the sharecropper is actually an employee of the taxpayer and receives a share of the crop as remuneration for services rendered. Under these other types of arrangements the landlord could be in the business of farming depending upon the facts of a specific case. We cannot determine conclusively from the facts you have provided what type of sharecropping arrangement exists between the individual and her brother.

If the facts indicate that the individual (the daughter) is receiving rental income and not income from farming, the only person who has used the property in the course of farming since it was re-acquired from the Farm Credit is her brother, and as a brother is not a person mentioned in subparagraph (a)(vi) of the definition of “qualified farm property” in subsection 110.6(1) of the Act, the requirements of that subparagraph would not be met. Accordingly, the property would not qualify as “qualified farm property” in subsection 110.6(1) of the Act.

Roberta Albert, C.A.

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

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