18 June 2010 External T.I. 2010-0356961E5 - Qualified Farm Property

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: Can farm land previously owned by a sibling of a taxpayer, neither of the siblings has ever farmed the land, qualify as QFP under subsection 110.6(1), if the land was owned before the sibling by the parent of the taxpayer that actively farmed the land?

Position: No.

Reasons: The period of continuous ownership of the property by the parent and the taxpayer was interrupted by the acquisition of the property by the sibling of the taxpayer.

XXXXXXXXXX
				2010-035696
				S. Kim
				(613) 952-1506
June 18, 2010

Dear XXXXXXXXXX :

Re: Qualified Farm Property"

This is in response to your letter dated February 2, 2010, and further to our telephone conversation (Kim/XXXXXXXXXX ) concerning the definition of "qualified farm property" ("QFP") under subsection 110.6(1) of the Income Tax Act (the "Act").

You have read our Technical Interpretation Document E2009-0332871I7, wherein we commented that the wording "throughout the period of at least 24 months immediately preceding that time" that is found in paragraph 110.6(1.3)(a) requires that the farming use by eligible users that is referred to in paragraph 110.6(1.3)(b) occur during an uninterrupted period of ownership by eligible owners who are referred to in paragraph 110.6(1.3)(a).

You have described a situation where a parent, who was an active farmer, sells a parcel of land that is a QFP in the parent's hands to an adult son ("Son1"), who then sells the land after 1987 to his adult brother ("Son2"). You stated that neither Son1 nor Son2 has ever actively farmed the land.

You have asked whether or not the parent's farming use of the parcel of land can be taken into account in satisfying the farming use condition under subparagraph 110.6(1.3)(b)(i) in determining whether the parcel of land would meet the definition of a QFP in the hands of Son2.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. We are, however, prepared to offer the following general comments, which may be of assistance.

Subsection 110.6(2) of the Act permits a capital gains deduction of up to $375,000 for an individual who is resident in Canada throughout the year and disposed of QFP in the year. One of the conditions that must be met for a real property of an individual to be considered a QFP as defined in subsection 110.6(1) of the Act is that the property, inter alia, must have been used principally in the course of carrying on the business of farming in Canada.

Pursuant to subsection 110.6(1.3) of the Act, a property owned by an individual will not be considered to have been used in the course of carrying on the business of farming in Canada unless it has been owned by eligible owners referred to in paragraph 110.6(1.3)(a) of the Act, during a continuous eligible ownership period which is "throughout the period of at least 24 months immediately preceding that time" (i.e., time of disposition) and, in the case you described, the property is used in a farming business during such period as required by subparagraph 110.6(1.3)(b)(i).

Under paragraph 110.6(1.3)(a), an eligible owner in respect of a taxpayer (e.g., Son2), does not include a sibling (e.g., Son1). Accordingly, for the purposes of paragraph 110.6(1.3)(a) of the Act, the eligible period of ownership by Son2 would not include any period during which Son1 owned the property. In addition, the eligible period of ownership by Son2 would not include any period during which the parent owned the property. This is because the period in which the parent owned the property is separated by a period of ownership by Son1 who is not an eligible owner in respect of Son2. It follows, therefore, that the continuous eligible ownership period for Son2 consists only of the period during which Son2 is the owner.

The farming test referred to in subparagraph 110.6(1.3)(b)(i) of the Act by the taxpayer (e.g., Son2) or another eligible user must be met during a continuous eligible ownership period by Son2 as required by the wording "in at least two years while the property was owned by the one or more persons referred to in paragraph (a)" (i.e., eligible owners).

In the situation you described, the farming use of the parcel of land by Son2's parent cannot be taken account because the farming use by the parent did not occur during the eligible ownership period by Son2.

We trust that these comments will be of assistance.

Sandy Parnanzone
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch