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 shares of a corporation (Landco) whose assets consist of shares of a subsidiary corporation (Farmco) and land and building leased to Farmco, which uses the land and building, as well as its own assets, in a farming business in which the shareholders of Landco participate will qualify under the definition of "share of the capital stock of a family farm corporation" in subsection 70(10).
Position: Yes if: (i) all or substantially all of Landco's property is attributable to the combination of shares of Farmco and the land and building leased to Farmco and used principally by Farmco in its farming business; (ii) all or substantially all of Farmco's property is attributable to property used by it principally in its farming business; and (iii) the family members are actively engaged on a regular and continuous basis in Farmco's farming business. (In determining whether the shares of Landco qualify by virtue of subparagraph (c) of the definition, it should be noted that whether "all or substantially all of the fair market value of property" is attributable to a particular type of property and whether a particular property is used "principally in the course of carrying on the business of farming," are questions of fact about which we cannot comment.)
Reasons: Paragraph (c) of the definition.
XXXXXXXXXX J. Gibbons
5-992224
Attention: XXXXXXXXXX
December 20, 1999
Dear XXXXXXXXXX:
We are replying to your letter of August 10, 1999, in which you requested our views on the definition of a "share of the capital stock of a family farm corporation" in a hypothetical situation.
As requested, we have considered the situation outlined in your letter, and have provided some comments below. However, we cannot confirm the tax implications of particular transactions unless the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R3. Thus, our comments are of a general nature only.
You describe a corporate structure involving a holding company, Landco, and a wholly-owned operating company, Farmco. In addition to the shares of Farmco, Landco owns land and a building, which are rented to Farmco for use in its farming business. The land and building so rented, along with all of Farmco's assets are used by Farmco in carrying on a full-time farming business. Farmco does not have any other business activity. The shares of Landco are owned by a mother, her son, daughter-in-law and granddaughters (the "family members"). All are actively engaged, on a regular and continuous basis, in the farming business carried on by Farmco.
In your letter, you ask whether the shares of Landco and Farmco will meet the definition of "share of the capital stock of a family farm corporation" (the "definition") in subsection 70(10) of the Income Tax Act. In a telephone conversation (Gibbons/XXXXXXXXXX) on November 17, you clarified that your concern was whether the shares of Landco would meet the definition. As we understand it, the question is not relevant in so far as the Farmco shares are concerned, because they are all held by a corporation (Landco) in the hypothesis given.
It is our general view that each of Landco's shares owned by the family members will qualify as a share of the capital stock of a family farm corporation by virtue of subparagraph (c) of the definition if:
(i) all or substantially all of Landco's property is attributable to the combination of shares of Farmco and the land and building leased to Farmco and used principally by Farmco in its farming business;
(ii) all or substantially all of Farmco's property is attributable to property used by it principally in its farming business; and
(iii) the family members are actively engaged on a regular and continuous basis in Farmco's farming business.
In determining whether the shares of Landco qualify by virtue of subparagraph (c) of the definition, it should be noted that whether "all or substantially all of the fair market value of property" is attributable to a particular type of property and whether a particular property is used "principally in the course of carrying on the business of farming," are questions of fact on which we cannot comment.
We trust that these comments will be of assistance.
Yours truly,
John Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
??
- 2 -
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1999
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1999