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: Does the business of raising earthworms in order to harvest worm casting for commercialization meet the definition of "farming" for the purposes of the Act.
Position: Yes.
Reasons: The definition of farming is quite broad and not an exhaustive list.
XXXXXXXXXX
2011-040541
Sam Kim
(905) 721-5199
June 27, 2011
Dear XXXXXXXXXX :
Re: Meaning of "Farming" - Earthworm Farming
This is in response to your letter dated April 21, 2011, and further to our telephone conversation (Kim/XXXXXXXXXX ) regarding the meaning of the word "farming" that is defined in subsection 248(1) of the Income Tax Act (the "Act").
You asked us to comment on whether the earthworm operation described below constitutes farming for income tax purposes.
1. A taxpayer feeds, raises, and manages the reproduction of over a million earthworms commonly known as the "Red Wigglers".
2. These earthworms are raised in captivity on the taxpayer's farm in large soil beds and are fed organic materials in order to harvest worm "castings" (excreta) to be sold as organic fertilizer.
3. The castings are mixed with peat and lime and the mixed compound material is used as fertilizer in the taxpayer's farm and as well sold as premium soil mix.
Our Comments
Since your enquiry concerns an actual situation involving questions of fact, it should be dealt with by your local Tax Services Office. Nonetheless, we offer our general views regarding the application of the relevant income tax legislation. If you wish to have the CRA review your actual situation, you may wish to submit all of the relevant information and documentation to the particular Tax Services Office serving your area, a list of which is available on the "Contact Us" page of the Canada Revenue Agency website, which may be accessed on the internet at http://www.cra-arc.gc.ca.
According to the definition of "farming" in subsection 248(1) of the Act, "farming" includes tillage of the soil, livestock raising or exhibiting, maintaining of horses for racing, raising poultry, fur farming, dairy farming, fruit growing and the keeping of bees. However this list is not exhaustive and it has been decided by the courts that the word "farming" also includes tree farming, the operation of a wild game reserve and a mechanical hatching operation where eggs are acquired, hatched in incubators and the chicks sold within a few days of hatching. In certain factual circumstances, farming also may include raising fish, market gardening, and the operation of nurseries and greenhouses.
In the case of Clifford M. Pollon et al v. The Queen, (Federal Court - Trial Division) 84 DTC 6139, the court stated that:
"It seems clear on reading the definition of farming in section 248(1) quoted at the beginning of these reasons 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 to the specific activities detailed in the statute."
In Black's Law Dictionary, 8th Ed, the phrase "farming operation" is defined as follows:
"A business engaged in farming, tillage of soil, dairy farming, ranching, raising of crops, poultry, or livestock, and production of poultry or livestock in an unmanufactured state."
The meaning of livestock is discussed in the CRA publication Interpretation Bulletin IT-427R - Livestock of Farmers, where it is indicated that livestock is not defined in the Act, but includes any and all animals, (i.e., living organisms which are not plants or bacteria) if they are kept, maintained and bred under controlled conditions for profit.
In the case of Desrosiers (Succession de) c. R., (Tax Court of Canada) 2001 DTC 37, the court mentioned activities which would fall within the definition of farming:
"Clearly, such a definition is not intended to be exhaustive. Recourse to the ordinary meaning of the word therefore seems appropriate in order to determine its scope.
" In Le Grand Robert, Dictionnaire alphabétique et analogique de la langue française, 2nd Edition, 1988 (Le Grand Robert) the primary meaning of the French word "agriculture" (farming) is given as follows:
"Culture, travail de la terre; par ext., production des plantes et des animaux utiles fournissant les denrées alimentaires et les matières premières d'autres industries... apiculture, arboriculture, aviculture, horticulture, pisciculture, sériciculture, sylviculture, viticulture; élevage...
[TRANSLATION]
"Cultivation, working the land by ext., production of useful plants and animals providing foodstuffs and raw materials for other industries... bee-keeping, aboriculture, poultry raising, horticulture, pisciculture, sericulture (raising silkworms for silk), silviculture, viticulture; animal raising...."
Whether or not a particular activity carried on by a taxpayer is faming is a question of fact to be resolved by a review of the case and surrounding circumstances, including the nature and extent of other activities carried on by the taxpayer and the relationship of the particular activity with such other business activities. This review would also have to consider whether the taxpayer's operations involve one business or more than one business and the nature (main operational activities) of such business or businesses. More information on this latter topic can be found in Interpretation Bulletin IT-206R, Separate Businesses.
Subject to the above caveat, we would venture to say that the activities of keeping, maintaining and breeding earthworms in a controlled environment for the purposes of harvesting worm castings for sale at a profit, considering these activities by themselves and ignoring the existence of other operations, generally would qualify as farming provided that the activities in relation thereto are substantial and extensive.
We would add, however, that the production of premium soil mix using peat, lime and worm castings may or may not be considered as farming. The determination of whether the production of premium soil mix is farming is a question of fact that can only be determined after a review of all the relevant documents and the circumstances applicable to a particular situation. As the subject matter of your inquiry involves questions of facts, you may wish to contact the local TSO for assistance
These comments represent our general views with respect to the subject matter of your letter. The facts of a particular situation may yield a different result. The foregoing comments are not rulings and, in accordance with the guidelines set our in paragraph 22 of IC 70-6R5 - Advance Income Tax Rulings, are not binding on the Agency.
We trust our comments will be of assistance to you.
Yours truly,
Sandy Parnanzone
Manager
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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