22 December 1998 External T.I. E9828245 - FAMILY FARM CORPORATION

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 farm land could be considered as non-farm use if more than 50% of its fair market value is derived from mineral rights or oil surface rights/leases.

Position: Yes.

Reasons: The definition of "share of the capital stock of a family farm corporation" in subsection 70(10) of the Act only includes "property that has been used ... principally in the course of carrying on the business of farming in Canada".

982824
XXXXXXXXXX A. Seidel
(613) 957-8974
Attention: XXXXXXXXXX

December 22, 1998

Dear Sirs:

Re: Family Farm Corporation

This is in reply to your letter dated October 15, 1998 in which you requested our views as to whether land that earns significant annual non-farm income from mineral rights or oil surface rights/leases would be included as farm property for the “all or substantially all of the fair market value of the property owned by the corporation” test in the definition of “share of the capital stock of a family farm corporation” in subsection 70(10) of the Income Tax Act (the “Act”) (hereinafter referred to as the “Definition”).

The situation described in your letter relates to actual fact situations. To the extent that you require assistance in determining the current tax status of the taxpayers involved, you should contact your local Taxation Services Office. To the extent that you require confirmation of the tax consequences of proposed transactions, we bring to your attention Information Circular 70-6R3 dated December 30, 1996 issued by Revenue Canada. Confirmation with respect to proposed transactions involving specific taxpayers should be the subject of a request for an advance income tax ruling. If you wish to obtain an advance income tax ruling for particular taxpayers with respect to specific contemplated transactions, a written request for an advance income tax ruling should be submitted in accordance with the Information Circular. Nevertheless, we can provide you with the following general comments.

“Farm property” generally includes property used in the business of farming (see Interpretation Bulletin IT-322 for a discussion of whether a particular farming operation constitutes a farming business) in Canada and includes land or depreciable property of a prescribed class and eligible capital property of a business carried on in Canada. Paragraph 17 of Interpretation Bulletin IT-268R4 (“IT-268R4”) discusses the definition of “share of the capital stock of a family farm corporation”, applicable when the farming business is carried on by a corporation. As outlined in paragraph 19 of IT-268R4, a corporation which uses 90% or more, in terms of the fair market value, of its property principally in qualifying uses will meet the “all or substantially all” test in the Definition. The determination of whether or not a particular property is considered to be used “principally in the course of carrying on the business of farming” and the fair market value of a property are questions of fact. As stated in paragraph 22 of IT-268R4, generally, the Department considers that, for purposes of the Definition, an asset is used in a farming business if its primary or principal use (i.e., more than 50% of its use) is in respect of the farming business. If a particular asset does not meet the 50% farming business usage test it is considered to be an asset set aside for investment or non-farm use.

In the situation where a particular property, such as land, derives its fair market value from both farm use and any mineral rights or oil surface rights/leases, the land will qualify as farm property if more than 50% of its fair market value is derived from the farm use and would be considered to be non-farm use if more than 50% of the fair market value of the land is derived from the mineral rights or oil surface rights/leases.

These comments are provided in accordance with the guidelines set out in paragraph 22 of IC 70-6R3 and are therefore not binding on Revenue Canada.

Yours truly,

for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch
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