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 2 brothers who owned farmland can transfer the property to a corp in the situation where they had earlier claimed the capital gains exemption in 1994.
Position: Depends on meeting the definition of qualified farm property in 110. 6(2)(a)(vi) (because earlier they had claimed an exemption on the 1994 capital gain under 110.6(19) and property is deemed reacquired after Feb.22, 1994 so that it was last acquired after June 17, 1987.
Reasons: We had commented on these issues previously-see
XXXXXXXXXX 1999-000365
August11, 1999
Dear XXXXXXXXXX:
We are writing in response to your letter of June 30, 1999, concerning a proposed disposition of farmland by your clients.
You stated the following:
Two brothers, A and B, acquired a dairy farm operation in 1989, and operated it as a partnership until 1993, when the business was transferred to a corporation. All of the dairy assets, including the milk quota, cows and equipment, were transferred, but A and B retained ownership of the farmland personally. In 1994, A and B used the lifetime capital gains exemption [presumably pursuant to the election available under subsection 110.6(19) ofthe Income Tax Act (the Act)].
A and B are now contemplating a transfer of their farmland to their corporation. A has been operating the dairy farm, but B has been employed in off-farm activities. You indicated that for the 2 years 1990 and 1991, B's gross income from farming exceeded his earnings from other sources. You asked whether the A and B would qualify for the capital gains exemption on the transfer of the farmland to the corporation. (We understand that you mean under subsection 110.6(2) of the Act).
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request. The procedures for requesting an advance income tax ruling are outlined in Information Circular 70-6R3 dated December 30, 1996. Where the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments which are of a general nature and are not binding on the Department.
When the capital gains election was filed in respect of capital property, the property was deemed, pursuant to subparagraph 110.6(19)(a)(ii) of the Act, to have been reacquired by the elector immediately after February 22, 1994. Therefore, in our opinion, if the capital gains election was filed by A and B in respect of "qualified farm property," the property would be considered to have been last acquired after June 17, 1987. The significance of this date is that the particular farm property will have to meet the definition of "qualified farm property" pursuant to subparagraph (a)(vi) of that definition in the Act. In general terms, if "qualified farm property" has been disposed of; A and B would be entitled to claim the capital gains deduction to the extent provided under subsection 110.6(2) of the Act.
In making your determination as to whether A and B have "qualified farm property" for which they may claim the capital gains exemption in regard to the specific situation you have in mind, we suggest that you consider the general comments and explanations that we provided you last year in our letter July 21, 1998, on this subject (our reference number 981802). Since there have been no changes to the Act since then, the same general considerations are required.
We hope that our general comments will be of assistance.
Sincerely,
John Oulton
For Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
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