7 October 2016 APFF Roundtable Q. 10, 2016-0652931C6 F - Bien agricole admissible-saisine par succession -- translation

Translation disclaimer

This translation was prepared by Tax Interpretations Inc. The CRA did not issue this document in the language in which it now appears, and is not responsible for any errors in its translation that might impact a reader’s understanding of it or the position(s) taken therein. See also the general Disclaimer below.

Principal Issues: Whether the condition under subparagraph 110.6(1.3)(a)(i) is met when a child acquires a land from his estate’s father during the seizin by the estate?

Position: If the estate is a personal trust as defined under subsection 248(1) the condition under subparagraph 110.6(1.3)(a)(i) may be satisfied for the child.

Reasons: Previous positions and wording of the Act.

7 October 2016 APFF

QUESTION 10

CAPITAL GAINS EXEMPTION ON THE SALE OF A FARM PROPERTY ACQUIRED FROM AN ESTATE

Under the current tax rules, an individual can benefit from an exemption of $1 million on the capital gain from the sale of farm property. Depending on whether the farm property was acquired before June 18, 1987 or after June 17, 1987, the conditions for eligibility for this exemption are somewhat different.

Where the property was acquired by the individual after June 17, 1987, there is a gross revenue test and a holding period test to qualify for exemption under subsection 110.6 (1.3). The holding test stipulates that the farm property must have been owned, throughout a period of at least 24 months before the sale, by one of the following people: the individual, or a spouse, common-law partner, child, parent, grandparent or great-grandparent of the individual.

As for the gross revenue test, it does not necessarily have to be met by the individual who owns the property but can be met by one of the persons listed above, provided that the property has been continuously held by direct ascendants or descendants.

In various technical interpretations (for example, 2010-0356961E5 and 2009-0332871I7), the CRA specified that if the individual acquired farm property after June 17, 1987 from a person other than the taxpayer's spouse or the direct ascendants or descendants of the taxpayer, the exemption of $1 million would not apply if the individual did not meet the tests (including the gross revenue test).

Question to CRA

Is the CRA of the view that the test for holding by direct ascendants or descendants is satisfied where a child acquires a property from the estate of his father, which had been holding the property, and not from his father directly?

CRA response

Upon the disposition of a property, an individual may claim a capital gains deduction where the property is a "qualified farm or fishing property" within the meaning of that term in subsection 110.6(1). Under paragraph (a) of this term, the property must have been used in the course of carrying on a farming or fishing business in Canada. The individual must also meet all the other requirements of section 110.6.

Subsection 110.6(1.3) states that a "qualified farm or fishing property" is considered to have been used in the course of carrying on a farming or fishing business in Canada if certain conditions are met. Subparagraph 110.6(1.3)(a)(i) requires that the property was owned throughout the period of at least 24 months immediately preceding the particular time by one or more of the persons listed in this subparagraph. These persons include the following: the individual or a spouse, common-law partner, child or parent of the individual. Also included is a personal trust from which the individual, or child or parent of the individual, acquired the property.

In short, under subsection 248(1), a personal trust is defined as a GRE or an inter vivos trust no beneficial interest in which was acquired for consideration payable to the trust or to any person or partnership that has made a contribution to the trust.

During the holding by the executor [lit., “during the seisin of the liquidator”], the CRA considers that the estate [“succession”] has the ownership of property, and without regard to the private law applicable to the estate.

Generally, the condition set out in subparagraph 110.6(1.3)(a)(i) could be satisfied where an individual has acquired a property from an estate which is a personal trust and the property belonged to one or more of the persons listed in subparagraph 110.6(1.3)(a)(i) throughout the period of at least 24 months before the given time.

Response prepared by:
Danny Gagnon
613-670-9030
October 7, 2016
2016-065293