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 taxpayer have to be actively farming the property during the 24 months immediately prior to the sale for the property to be considered qualified farm property
Position: No - as long as the requirements in subsection 110.6(1.3) are met
Reasons: Legislation
XXXXXXXXXX
2010-038587
S. D'Angelo
(613)952-5803
January 12, 2011
Dear XXXXXXXXXX :
Re: Capital Gains Exemption and Qualified Farm Property
This is in response to your e-mail of November 3, 2010 concerning the availability of the capital gains exemption under section 110.6 of the Income Tax Act (the "Act") in respect of disposition of certain property that was used in a farming business.
You have indicated that you purchased land in 1988 and have actively farmed it since that time. You also indicated that during almost all of that time your farming income would have exceeded all other sources of income. You are now considering leasing this land for a three-year period after which you might sell such land and related farm property.
Our Comments
The situation outlined in your letter appears to relate to a factual one, involving a specific taxpayer. It is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advanced income tax ruling. For more information about how to obtain a ruling, please refer to Information Circular 70-6R5, "Advanced Income Tax Rulings, dated May 17, 2002. This Information Circular and other Canada Revenue Agency (CRA) publications can be accessed on the internet at http://www.cra-arc.gc.ca. Notwithstanding the above, we are prepared to provide the following comments which may be of assistance.
Generally speaking, subsection 110.6(2) of the Act permits an individual (other than a trust) who is resident in Canada throughout the taxation year to claim a capital gains exemption of up to $750,000 where that individual has disposed of qualified farm property (QFP) in that year provided certain conditions are satisfied.
The definition of QFP in subsection 110.6(1) of the Act provides, inter alia, that QFP of an individual (other than a trust that is not a personal trust) includes "real or immovable property that was used in the course of carrying on the business of farming in Canada" by certain qualifying persons, who may include the individual, the individual's spouse or common-law-partner, the individual's child or parent.
Subsection 110.6(1.3) of the Act provides that for the purposes of applying the definition of QFP a particular property will not be considered to have been used in the course of carrying on the business of farming in Canada unless certain ownership and use conditions described in that subsection are met. The application of the specific ownership and use conditions in subsection 110.6(1.3) of the Act will depend on when the particular property was last acquired.
While a question of fact, it appears that the land was last acquired by you after June 17, 1987. As long as you continue to own the land throughout the period of at least 24 months prior to its disposition the fact that such land might not be used in any farming business carried on by you during that 24 month period will not, in and of itself, preclude such land from being considered as QFP. For instance, and as it may pertain to the facts in your situation, assuming the 24 month ownership requirement is met, the land would be considered as QFP if, in at least two years while you owned the land you had gross revenue from your farming business carried on in Canada that exceeded your income from all other sources and such land was used principally in that farming business in which you were actively engaged on a regular and continuous basis.
We would also like to point out that on November 5, 2010 Finance Canada released a proposed amendment to the rules in subsection 110.6(1.3) of the Act. In our view the proposed amendment to subsection 110.6(1.3) of the Act will not have any impact on the above comments.
We trust our comments will be of assistance.
Yours truly
S. Parnanzone
For Director
Business and Partnership Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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