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 the land owned by a taxpayer is considered to be "qualified farm property"?
Position: Perhaps
Reasons: Question of fact.
XXXXXXXXXX 5-981160
Karen Power, CA
June 24, 1998
Dear XXXXXXXXXX:
Re: Capital Gains Deduction - “Qualified Farm Property”
We are writing in reply to your letter of April 21, 1998 in which you requested our views on whether land owned by your mother is considered to be "qualified farm property" for the purposes of claiming the capital gains exemption under 110.6(2) of the Income Tax Act (the "Act").
You have provided us with the following facts:
1. Your father, Mr. S purchased a parcel of land (approx. 101 acres) in 1972. This parcel of land, along with a second parcel of land owned by an unrelated individual Mr. D, were collectively farmed as Recollection Farms (the “Farm”).
2. The parcel of land was transferred to your mother, Mrs. S, following Mr. S’s death is 1984.
3. In the years 1972 to 1991, all revenues and expenses of the Farm were split evenly between Mr. or Mrs. S and Mr. D.
4. During those years, the Farm engaged two full time employees who lived and worked on the farm. In addition to the two full-time employees, your sister (the daughter of Mr. & Mrs. S) managed the farming activities on both parcels of land. Your sister lived in the main farmhouse and was not employed elsewhere during the years of 1972 through to 1991.
5. In the years 1972 to 1991, the Farm owned a cattle herd, grew wheat, oats and barley and horses were boarded at the farm.
6. In 1991, the farm equipment and cattle were sold. Since that time, the income generated from the parcel of land has consisted of farm tax rebates and crop land rental.
The particular circumstances in your letter on which you have asked for our views relates to 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. However, we are prepared to offer the following general comments which may be of some assistance to you. Our comments are based on the assumption that the Farm was not operated as a legal partnership and Mrs. S has sole ownership of the parcel of land in question.
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 the above situation, your mother acquired the farm land in 1984. Consequently, the farm land can be considered to have been used in the course of carrying on the business of farming if the requirements of subparagraph (a)(vii) of the definition of “qualified farm property” in subsection 110.6(1) of the Act are met.
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.
A review of all of the facts surrounding a situation would be required to conclusively resolve whether the parcel of land held by Mrs. S meets the requirements of “qualifies farm property” and this would be best resolved by a Tax Services Office. Nevertheless, in your situation, the requirements of subparagraph (a)(vii)(B) of the definition of “qualified farm property” in subsection 110.6(1) of the Act appear to be met if, in fact, in at least five years during which the property was owned by either Mr. S or Mrs. S, it was used principally by Mr. S or Mrs. S in the course of carrying on the business of farming in Canada.
We trust our comments will be of assistance to you.
Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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