2 March 1999 Internal T.I. 9901747 - MEANING OF FARMING, 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:

1) Whether the activities of seeding, raising, and harvesting shellfish commercially, on a large scale, would meet the definition of “farming” as defined in subsection 248(1) of the Act.

2) If so, then would a tenure be considered “qualified farm property”, as defined in subsection 110.6(1) of the Act, and would a gain arising on the disposition of a tenure by an individual be considered to qualify for the capital gains exemption under subsection 110.6(2) of the Act?

Position:

1) Question of fact whether the activities carried on by a particular shellfish farm operator would qualify as “farming” for purposes of subsection 248(1) of the Act; however, on balance, the activities of growers of shellfish that follow a process whereby the shellfish are seeded, raised and harvested commercially, on a large scale, would likely be considered to be “farming” for purposes of that definition in subsection 248(1).

2) We do not have sufficient information about tenures to determine if they may qualify as “qualified farm property” in subsection 110.6(1).

Reasons:

1) See definition of farming in subsection 248(1). Also paragraph 8 of IT-433R and paragraph 6 of IT-322R indicates that in certain factual circumstances, we will consider that farming includes raising fish.

2) We do not have sufficient information to determine if a “tenure” is a license or a lease or a combination of both.

		March 2, 1999

	Victoria Taxation Services Office	HEADQUARTERS
	Verification and Enforcement	G. Moore
	   Division	952-1506

	Attention:  Brian A. Norman
		7-990174

Meaning of “Farming” and Definition of “Qualified Farm Property”

We are writing in reply to your correspondence of December 11, 1998, regarding the definition of “farming” in subsection 248(1) of the Income Tax Act (“the Act”).

You have asked whether the activities of seeding, growing, raising and harvesting shellfish commercially, as an individual, on a large scale, would meet the definition of “farming”, as defined in subsection 248(1) of the Act. In the particular case that you are examining, the taxpayer buys clam seed from California and then grows them artificially in controlled circumstances using various methods. You indicate that this type of operation is not the same as someone who merely harvests wild clams and oysters which are seeded and grown by nature. If the activity of seeding, growing, raising and harvesting shellfish commercially does meet the definition of “farming” in subsection 248(1) of the Act, then you are asking if tenures, which you indicate are similar to fishing licences, would be “qualified farm property”, as defined in subsection 110.6(1) of the Act, and whether any gain on the disposition of tenures would qualify for the capital gains exemption, pursuant to subsection 110.6(2) of the Act.

Our Comments

For purposes of the Act, the word “farming” is given a wide definition by subsection 248(1) of the Act. It includes tillage of the soil, the raising or exhibiting of livestock, the maintenance of horses for racing, the raising of poultry, the keeping of bees, fur farming, dairy farming and fruit growing. As indicated in IT-433R, Farming or Fishing - Use of Cash Method, the definition is not exclusive and it has been decided by the courts that farming also includes tree farming, the operation of a wild game reserve, and a mechanical hatching operation where eggs are acquired, hatched in incubators and the chicks sold within a few days of hatching. In certain factual circumstances, it is considered that farming includes raising fish, market gardening and the operation of nurseries and greenhouses. However, farming does not include an office or employment under a person engaged in the business of farming.

The definition of “farming” in subsection 248(1) of the Act does not contain an all-inclusive list of agricultural activities that will be accepted as farming for income tax purposes. On this point, in the case of Clifford M. Pollon et al. v. The Queen, 84 DTC 6139, the Honourable Mr. Justice Addy stated that:

“It seems clear on reading the definition of farming in sec. 248(1) quoted at the beginning of these reasons that, since “farming” is defined as including the raising of poultry, together with other various agricultural activities, the enumeration of these matters is not intended to constitute an exhaustive definition and one must look to the common, ordinary and generally accepted meaning of the word as to the specific activities detailed in the statute.”

“More and more today because of numerous and rapidly developing scientific and technological methods and procedures in the field of food production, men and manually controlled implements are being replaced by machinery and scientifically developed technical processes. Where the development of the basic food product still involves the growing process and natural biological changes as opposed to artificially manufactured foods or mere processing, I do not feel that, generally speaking, the activity would be considered by the general public anything other than agricultural in nature and would, therefore, generally be considered as a farming operation.”

In our view, it is entirely a question of fact whether the cultivation of the natural produce of water as shellfish can be considered to be “farming” for the purposes of that definition in subsection 248(1) of the Act. In the case where the activities of the growers of the shellfish follow a process whereby the shellfish are seeded or stocked, raised and harvested in a controlled environment, it is possible that the activity may be defined as “farming”. Some of the relevant criteria in making this determination include:

• the method of holding or containing the shellfish during their natural period of growth;
• extent of feeding;
• extent of medication and fertilization;
• method and extent of monitoring of shellfish during the growing period;
• method of harvesting when the crop is fully grown; and
• manpower and expertise required during monitoring and harvesting period.

Therefore, whether an activity constitutes “farming” can be determined following an analysis of the business, with reference to the above criteria. Accordingly, we cannot comment on whether the activities in the particular case you described would constitute “farming”. However, on balance, in our view, the activities of growers of shellfish that follow a process whereby the shellfish are seeded, raised and harvested commercially, on a large scale, would likely be considered to be “farming”, as that term is generally understood, and would therefore so qualify for purposes of the Act.

You have also asked if a tenure, which you have indicated is similar to a fishing licence, would be “qualified farm property” as defined in subsection 110.6(1) of the Act. As we understand it, XXXXXXXXXX, a tenure is issued by that Crown Corporation to an individual for the lease of coastal crown land and for the licensing of the operation of a shellfish aquaculture farm for a period of 10 to 30 years. The Crown Corporation values the tenure area at $1,000 per acre and charges annual rent to the individual of approximately 8% of the value of the tenure area (minimum of $500 per year). As the availability of coastal crown land tenures is limited, the transfer of tenures is generally permitted by the Crown Corporation, subject to the terms and approval of the Crown Corporation. Based on our enquiries, and the information available, it is not clear whether a “tenure” is a lease or a license or a combination of both. Therefore, since we do not have sufficient information about tenures, we cannot comment on whether a tenure may qualify as “qualified farm property” as defined in subsection 110.6(1) of the Act. We would be pleased to reconsider your request if additional information or documentation regarding tenures is submitted. You should be aware that, based on our enquiries, there may also be a valuation issue related to tenures for which you would need to obtain the views of departmental valuations experts.

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R. Albert, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch