19 September 1989 Income Tax Severed Letter AC58492 - Roll-over of Farm Property to Child - "Proceeds of Disposition Otherwise Determined"

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.

5-8492
    19(1)                               R.B. Day
                                        (613) 957-2136
SEP 19 1989

19(1)

We are writing in reply to your letter of August 3, 1989, wherein you requested our interpretation of the phrase "proceeds of disposition otherwise determined" as used in subparagraph 73(3)(b)(i) of the Income Tax Act.

Our understanding of the situation described in your letter is as follows:

A father engaged in the business of farming has transferred by way of gift inter-vivos qualified farm property that is land to his son.

               24(1)

As you understand it, "proceeds of disposition otherwise determined" may be any amount between the adjusted cost base and fair market value.

Therefore, the transferor would include a capital gain of 24(1) in his income for tax purposes, which may be sheltered from taxation by utilizing the available 24(1) capital gains deduction with respect to the disposition of qualified farm property.

Our Comments

Paragraph 5 of IT-268R3 states, in part, that "...`proceeds of disposition otherwise determined' means the amount of consideration paid or payable by a child on a transfer of farm property. In the case of a gift, there is no consideration paid or payable and, because of paragraph 73(3)(c) section 69 does not apply to otherwise determine the proceeds of disposition on such a transfer."

In view of the above, it is our opinion that in the situation described in your letter "proceeds of disposition otherwise determined" would be a NIL amount and subparagraph 73(3)(b)(iii) would apply. The land would be transferred to the son at its adjusted cost base of 24(1). The transferor would not, therefore, realize a capital gain on the transfer of the land and would not need to claim the capital gains deduction under subsection 110.6(2).

We hope these comments will be of assistance to you.

Yours truly,

for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch