10 April 2014 Internal T.I. 2014-0522091I7 - Whether aquaculture is farming under the Act

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.

Principal Issues: Is "aquaculture" considered "farming" or "fishing" as defined in s. 248(1) of the Act?

Position: Question of fact, but generally considered farming.

Reasons: Growing crops and raising fish form part of the common meaning of farming and as such fall within the non-exhaustive definition in the Act.

XXXXXXXXXX
2014-052209
Whitney Dunn

April 10, 2014

Dear XXXXXXXXXX:

RE: Aquaculture and the definition of farming under the Income Tax Act

We are writing in response to your email of February 26, 2014, where you requested our views on whether aquaculture falls within the definition of farming under the Income Tax Act (the "Act").

Our comments

This technical interpretation provides general comments about the provisions of the Act. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings.

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 tax purposes. As the Honourable Mr. Justice Addy stated in Pollon et al v. The Queen:

It seems clear on reading the definition of farming in sec. 248(1) … 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 well as to the specific activities detailed in the statute. (footnote 1)

Aquaculture is not listed within the definition of farming in subsection 248(1). The question then becomes whether it falls within the generally accepted meaning of that word.

According to the Oxford Concise Dictionary, "aquaculture" is defined as "cultivation of plants or breeding of animals in water". The CRA has generally accepted that:

• cultivating crops in water or growing them hydroponically is farming; and
• growing fish or shellfish in water is normally farming where those are stocked, raised and harvested in a controlled environment.

When considering whether an activity fits within that second point mentioned above, the following criteria are relevant:

1. the method of holding or containing the fish or shellfish during their natural period of growth;
2. extent of feeding;
3. extent of medication and fertilization;
4. method and extent of monitoring of fish or shellfish during the growing period;
5. method of harvesting when the crop is fully grown; and
6. manpower and expertise required during monitoring and harvesting period.

The greater the extent and the more sophisticated or organized the methods, the more likely the activity is considered to be farming.

A few additional considerations deserve mention.

First, using sophisticated technology does not disqualify an activity from being farming as long as the activity involves the growing process and natural biological changes. (footnote 2) For example, raising fish, even in highly artificial conditions, is normally considered farming as the end product is the result of natural growth.

Second, farming must be distinguished from separate, though often related, activities. Continuing the example, the activities after the fish have matured —such as gutting, cleaning, freezing, packaging and storing— are normally considered processing activities, not farming. Where a farming business exists, those types of activities may form part of that business or potentially be a separate manufacturing and processing business. Please refer to Interpretation Bulletin IT-206R, Separate Businesses, for more information.

Third, while "aquaculture" generally may be considered to be farming, some aquaculture activities may potentially fall within the non-exhaustive definition of "fishing" in subsection 248(1) of the Act. Fishing is defined to include fishing for or catching shell fish, crustaceans and marine animals. Harvesting wild clams or oysters from the seabed, for example, is likely fishing rather than farming. Ultimately, the determination as to whether a particular activity is a farming or a fishing activity can only be made by examining the specific facts on a case-by-case basis.

We trust our comments will be of assistance.

Michael Cooke, C.P.A., C.A.
Manager
Business Income and Capital Transaction Section
Business and Employment Division
Income Tax Rulings Directorate

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 84 DTC 6139 at page 6142.

2 Pollon at page 6144.