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 land owned by the taxpayer constitutes "qualified farm property"?
Position: Perhaps
Reasons: We have not been provided with enough detail to make such a determination. Only general comments have been provided.
5-980784
XXXXXXXXXX Karen Power, C.A.
(613) 957-8953
May 27, 1998
Dear XXXXXXXXXX :
Re: Whether land constitutes “qualified farm property”
We are writing in reply to your letter of March 16, 1998 in which you requested our views on whether land which you own is considered to be "qualified farm property" for the purpose of claiming the capital gains exemption under subsection 110.6(1) of the Income Tax Act (the "Act").
You have indicated that the farm land was purchased in 1973, and that the cleared portion of land has been farmed since that time. In 1994, one portion of the land was transferred to your children. In 1997, further to a cohabitation agreement as a result of your divorce, one half of the remaining portions of land was transferred to your wife to be held with you as “tenants in common”. You are now considering selling the farm land and have requested a ruling as to whether this land constitutes “qualified farm property”.
An advance ruling is a written statement given by the Department to a taxpayer stating how it will interpret specific provisions of existing Canadian income tax law in its application to a definite, proposed transaction or transactions which the taxpayer is contemplating. Full disclosure is required and where the transaction is to be completed at some indefinite future time or where satisfactory evidence is lacking that a proposed transaction is being seriously contemplated the request for an advance ruling may be refused. Additionally, where a matter on which a determination is requested is primarily one of fact, and the circumstances are such that all the pertinent facts cannot be established at the time of the request for the advance ruling, an advance ruling will not be granted. In the event that you should later decide to re-submit a ruling request on this matter or a similar matter, we suggest that, in addition to the above requirements, the relevant documents and other information referred to in paragraphs 16(a) to (n) of Information Circular 70-6R3 be submitted with your request. A copy of IC 70-6R3 is enclosed for your files.
The determination of whether a particular property qualifies as “qualified farm property” necessitates an appreciation of all of the particular facts of a given situation. Unfortunately, we have not been provided with sufficient information on the farm land to provide a ruling on whether the land constitutes “qualified farm property”. However, we are prepared to provide the following comments which will assist you in this determination. These comments are of a general nature and are not binding on the Department.
Basically, subsection 110.6(2) of the Act permits a lifetime capital gains deduction of $500,000 for an individual resident in Canada throughout the year who disposed of “qualified farm property” in the year. One of the conditions that must be met for real property of an individual to be considered a "qualified farm property" within the meaning of subsection 110.6(1) of the Act, is that the property has been used in the course of carrying on the business of farming in Canada.
Whether a property is considered to have been used in the course of carrying on the business of farming is dependent on when the property was last acquired by the individual. In your situation, you originally acquired the farm land in 1973, your daughters acquired their portion of the farm land in 1994 and your wife acquired her tenants in common interest in 1997. Consequently, the farm land which you own can be considered to have been used in the course of carrying on the business of farming if the requirements of either subparagraph (a)(vi) or (a)(vii) of the definition of “qualified farm property” in subsection 110.6(1) of the Act are met. Your daughters and your wife will need to meet the requirements of subparagraph (a)(vi) of the definition of “qualified farm property” in subsection 110.6(1) of the Act, in order for their land to be considered to have been used in the course of carrying on the business of farming.
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 the conditions described in clause (a)(vi)(A) or (a)(vi)(B) of the definition of "qualified farm property" in subsection 110.6(1) of the Act. Clause (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 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 and may be the parent or spouse of the individual. For example, if a parent has met the gross revenue test in at least two years while he or she owned the property, and the parent later transfer the property to a child, the requirements of clause (a)(vi)(A) of the definition of “qualified farm property” in subsection 110.6(1) of the Act may be met even though the child has not farmed the property.
In addition, pursuant to subparagraph (a)(vii) of the definition of “qualified farm property” in subsection 110.6(1) of the Act, real property acquired before June 18, 1987 or after June 18, 1987 under an agreement in writing entered into before that date, will be considered to have been used in the course of carrying on the business of farming in Canada and, therefore, qualify as "qualified farm property" provided the following requirements are met. The property must be used by the individual, a spouse, child or parent of such a person, a family farm corporation in which any of the above persons own shares, 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, principally in the course of carrying on the business of farming in Canada, either in the year the property is disposed of, or in at least five years during which it was owned by the person, a spouse, child or parent of the person, a personal trust from which the person acquired the property or a family farm partnership.
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. We have enclosed copies of these Interpretation Bulletins for your files.
We trust our comments will be of assistance to you.
Roberta Albert, C.A.
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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