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: Does property qualify as qualified farm property?
Position: probably
Reasons: acquired pre-87 and farmed by father
XXXXXXXXXX D. Duff
983224
January 19, 1999
Dear XXXXXXXXXX:
Re: Qualified Farm Property
This is in reply to your letter of November 18, 1998 requesting our comments on whether the property described therein would be qualified farm property.
The property was purchased in 1976 by a married couple from the father of one of them. It was purchased at fair market value and each bought a 50% interest in the property. The couple farmed the property themselves or on a sharecropping arrangement with a neighbour. Their income or losses were reported as partnership income or losses on an equal basis. Both the husband and wife were employed elsewhere and their employment income and subsequent pension income always exceeded the gross revenue from farming. Prior to the couple acquiring the farm, it was in the family for generations and the father had been primarily engaged in farming for at least five years.
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. Should your transaction involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate tax services office for their views. However, we are prepared to provide the following comments which are of a general nature and are not binding on the Department, but may be of some assistance to you.
One of the conditions that must be met for real property to be considered a "qualified farm property" within the meaning of subsection 110.6(1) of the Act, is that the property be used in the course of carrying on the business of farming in Canada. Property acquired before June 18, 1987 will qualify as "qualified farm property" provided it was used by the person claiming the capital gains exemption, a spouse, child or parent of the person, or a family farm partnership in which any of the above persons have an interest, principally in 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 a person referred to above. In subsection 252(2) of the Act, parent of a taxpayer includes a person who is the parent of the taxpayer’s spouse. Since the father of one of the married couple farmed the property for a least five years while it was owned by the father, in our opinion, the property would meet the criteria for qualified farm property for both the husband and wife.
Paragraph 9 of Interpretation Bulletin, IT-433R addresses your other questions on farming income versus rental. As stated therein, “The crop share received by a landlord in a sharecropping arrangement is considered to be rental income and not income from farming.” This sharecropping arrangement refers to an arrangement where the owner of the land receives from the tenant a share of crop in lieu of the rent. However, given the facts above, this should not impact on the determination of whether the property is qualified farm property.
We trust our comments will be of assistance to you.
Yours truly,
Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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